Indian government asked Tesla not to sell Chinese manufactured Tesla cars in India. We want Tesla to set up their factory here in India. But Elon Musk is not ready to give up his idea of selling his chinese made Tesla car in India.
A couple of days back I wanted to buy a Simple edible oil dispenser made of Glass from Amazon website - it is basically a glass bottle with a lid such that the oil can be poured easily. Companies like Borosil are buying this from China and selling under Borosil. It is just one example… Today many existing indian companies from almost all sectors with good brand repute have stopped manufacturing the products in India … They find it cheaper to buy from China and sell it in India and still make a profit and survive.
Since 2002, India allowed 100% FDI under automatic route. After 2017, 4 major international automobile manufacturers of Repute, stopped their operations in India- Global giants like Harley Davidson, General Motors, Ford, and the UM motorcycles. When makers like them leave India, we really lose some great quality products and the shock waves created by the news are quite serious.
Ford and Chevy left. Toyota is surviving with the help of Maruti, Honda stopped CRV, and Civic. Nissan was struggling and Magnate came to the rescue.
VAG group has an India 2.0 project (on which expectations are high).
Isuzu is just here for the name sake…
Maruti being the jack of all trades is surviving. Surprisingly, the KIA motors have had a stampeding success, where they sold around 3 lakh cars in 3 years. The fear of people around the foreign manufacturers has in fact boosted the market for Indian manufacturers and they are coming up with world-class products (which is really hopeful).
Today, Auto sector in India contributes 7% of GDP and 49% of indian manufacturing , and one of the largest employment generators.
However, if you see our growth of auto industry during last 2 decades and compare with China and USA…
We are flat or stagnant where as Auto industry in China and USA have skyrocketed during last 20 years. (please refer the graph in team.bhp link)
So what are the reasons?
(1) Technological disruptions -from BS-1in 2000 to BS-VI in 2020 with in 20 years in India -which Europe took 24 years (1990-2014) - every time there was technological Upgradation, there was a price rise.
(2) Over-regulation / Safety regulation - Gradually we moved to ABS, Air bags, rigid crash structure, ABS with EBD, Seat belt pretension, seat belt warning, OBD… List is endless.
And these kind of features were demanded in 2 wheelers too. Rise in aquisition cost.
(3) Increased Road tax & Insurance- one of the highest in the world… Rise in acqusition cost.
(4) Diesel petrol (volatility in the Globe we import petroleum.)
(5) Unemplyment crisis leading to no disposable income.
(6) High GST rates of 28% plus cess range from 3-22% with effective tax rate up to 50% for high end vehicles.
(7) Demonetisation had it’s own role to play in the economy.
(8) Advent of shared mobility like ola, uber…
(9) very recently , Semiconductor supply chain issues, which we are yet to come out with a complete solution.
These are not the only reasons…there are many other hindrances for the foreign auto players, though we allow 100% FDI through automatic route.
(1) Unskilled labor: Yes. We have cheap labor here in India, but the skill sets when compared to other countries are not competitive enough
2) Indian land prices place it among one of the most expensive to own places in the entire globe. So, setting up a manufacturing facility would be obviously difficult.
3) Cost of power
4) Capital cost, which when compared to other countries, is around 20 to 30 percent higher here.
5) Logistics costs: The global average of logistics is around 8% of the revenue, while in India, it is around 13%
If this is our past, how does our future look like as far as Auto industry is concerned?
All said and done, let us look at these data on India’s Ranking in the world
India No 1 in the world in Tractor manufacturing
India is second largest bus manufacturer in the world
World’s largest two-wheeler and three-wheeler manufacturer
World’s third largest heavy truck manufacturer
World’s fourth largest car manufacturer
Demographics - with 1400 million people and 2nd largest populous country after China, currently, India is the youngest nation in the world with average indian age at 28. ( Europe 45 , Japan 48, USA 38, China 38)
Our 5 layer economic strata is both good and bad……The good point is that with 5 layer structure - Poor, lower income group , middle income group , higher income group and the rich and these people would need/use different kind of vehicles- so there will always be demand for different class of vehicles. . The bad point is that 60% of Indians are below poverty line - they don’t even get 2 square meals a day!
We have a forward looking Govt. Doing it’s best to address the issues - We must appreciate the Growth in EV basically because of Govt support in terms reduction in GST, road taxes and other incentives for EV.
Look at the scrappage policy for CV’s.
Green hydrogen incentives- a clear policy -aims to be world leader in Green hydrogen and renewables.
PLI schemes in Auto sector !
PLI on Battery storage solution.
Europe is planning Euro VII in 2025 with an aim to target carbon emissions reduction rather than conventional emissions such as HC, NOx, SPM, CO…
We closely follow Europe in terms of emissions standard. If we want to cut carbon emissions, EV as an intermediate solution and Green hydrogen is the ultimate solution for decarbonisation.
So, I am upbeat about the technological advancements in Auto sector, but I would remain cautiously optimistic for the near term as far as investment in auto sector is concerned,
though there are quite few drivers for growth in medium to long term.
CV industry is closely linked with economy and infrastructure. When there is a demand for steel, cement,metals… Trucks will be required to carry them. More roads means more vehicles…CV will grow as economy grows.
Most STU’s may deploy CNG Bus/ EV for city bus application for reducing carbon emissions
Cars /2 wheelers/ 3 wheelers growth could be driven by EV and rise in disposable income for lower economic strata group and need for personalized private vehicles due to Covid fear .
Similarly, Cars growth would be driven by CNG, EV… Maruti is yet to roll out it’s EV… Again it would depend upon disposble income. Here again autonomous vehicle one theme could further disrupt.
While shared mobility like ola uber could have dampened the car growth, but post pandemic, people would choose for pvt vehicles rather than shared mobility.
Those of you who are more interested to know more … Following links are given below:
Why Auto makers are struggling in India by team-bhp. It is a nice thread of discussion gives a lot of insights.
Investindia.gov.in… This is a govt website… Very nicely compiled actions
Presentation from IBEF on Auto industry - indian brand equity foundation
McKinsey Automotive revolution towards 2030. (Global out-look)
McKinsey report on Auto industry rebound post Covid 19.(Global outlook)
Discl : Have small exposure to Auto sector that includes some OEM’s and Auto components manufacturers.
It is not an investment advice
Please apply due diligence before investing.