Auto sector's bumpy ride in 2020

The Indian auto sector faced multiple challenges this year – from the pandemic putting a brake on sales to manufacturing taking a hit due to supply chain disruptions; let’s take a look at how the year 2020 fared for the industry.

Business Desk, ETV Bharat:The auto sector, which was seen as one of the success stories of Indian manufacturing during the last decade, had started the year 2020 on a challenging note. The industry had grappled with consistent decline in sales growth in 2019 due to lack of consumer demand and decline in infrastructure-related work.

The industry was expecting a revival in the new year, but the coronavirus pandemic dashed all hopes. What ensued was a never-seen-before chaos that threw all expectations, outlook and plans of the auto makers outside the window and made them readjust to the new reality.

Some lost and some won. Let’s take a look back at how the year 2020 fared for auto companies operating in India.

Lockdown impact on sales

Before Covid, the auto sector was majorly struggling to adjust to the new regulations of Bharat Stage (BS) VI regulations that were to come into effective from 1 April 2020.

The industry was reeling to liquidate BS-IV stocks, which was impacting the sales negatively. But then the lockdown was announced, which brought the sector to a standstill.

The initial weeks of lockdown saw auto manufacturing coming to a sudden halt and dealer showrooms being shut.

There were disruptions to the whole chain of production network due to shutdown of domestic and international supplier operations, logistics logjam, insufficient workforce due to delay in return of migrant labour and liquidity issues caused by lack of sales.

According to a recent parliamentary panel report submitted to Rajya Sabha, the automotive sector suffered loss of Rs 2,300 crore per day during the lockdown, with an estimated job loss of about 3.5 lakh.

However, from September, as the country went into the Unlock mode and started preparing for the festive and wedding season, the trends in production, domestic sales and exports began showing signs of improving.

Out of all the segments, tractors, passenger vehicles and two-wheelers have outperformed this year. However, demand for commercial vehicles is yet to gain pace due to slow economic growth, with three-wheelers being the biggest laggard.

Electric vehicle push

The electric vehicle (EV) space, which was thriving in 2019 with announcement of new product launches by different car makers and new government policies, took a slight breather this year as capital-intensive plans were put on a back burner.

But the government continued to focus on developing infrastructure to promote EV industry in India. Union Minister of Road Transport and Highways Nitin Gadkari recently announced that around 69,000 petrol pumps across the country will get at least one charging kiosk installed.

Before that, a number of decisions had already been taken to boost the industry like reduction in GST on EVs to 5%, allowing delinking of battery cost of 2-wheelers and 3-wheelers from vehicle cost, etc.

Some states like Delhi and Telangana also announced incentives like 100% exemption from road tax and registration fee on purchase of electric vehicles.

However, EV sales are yet to recover from the Covid shock. Though Tata Nexon EV have shown good growth during September-November 2020, crossing the 2000-sale milestone and becoming the best-selling electric car in India.

New entrants

Even as incumbent auto majors struggled with sales this year, new entrants MG and Kia had a dream run with new car models that created huge buzz in the markets.

Kia Motors reported a substantial 50% year-on-year growth in sales for the month of November. After the huge success of Seltos, Kia’s newly-launched Sonet has managed to maintain its hold in the sub-compact SUV segment.

In fact, Kia Motors became the fastest car manufacturer in India to achieve a milestone of 1 lakh cumulative sales.

Similarly, MG has been performing really well, especially with the Hector SUV that was launched last year in July. After Hector, the company has launched multiple new cars in India in a short span of time, including the electric crossover ZS EV and the Gloster.

In November 2020, MG Motor India recorded its highest ever monthly sales in India by selling 4,163 cars, registering 28.5% growth over last year.

Some exits, too

Even as new entrants made their mark, the cult bike maker Harley Davidson wrapped up Indian business after 11 years of operations as part of a global restructuring plan.

Mounting losses and shrinking market share in the premium motorcycle segments led to the company’s exit from India, making it the first auto casualty after Covid.

Though, a few weeks later, the company said that Harley bikes will continue to sell in India as a deal had been signed with Hero MotoCorp. Under the agreement, Hero will develop and sell a range of premium motorcycles under the Harley-Davidson brand name in the country. It would also take care of service and parts requirements for the Harley bikes.

Outlook

Experts say the pace of growth in domestic vehicle sales may continue to remain muted in coming months as the pent-up demand after the lockdown and festivities have ended.

Moreover, price hikes taken by companies like Maruti Suzuki India Ltd and Mahindra and Mahindra Ltd starting 1 January 2021 to offset the rise in the input and commodity prices would also affect buyer sentiment.

However, auto manufacturing could see some revival on the back of the government’s recently announced production-linked incentive scheme for the automobile industry.

The automobile Industry will be the biggest beneficiary with Rs 57,042 crore outlay over the next five years. The Federation of Automobile Dealers Associations (FADA) said the step will make the Indian auto industry more competitive globally, improve exports and will make production better in economies of scale.