Is this good news for the Indian auto industry?

  • Articles
  • Sep 26,22
It appears that the Indian auto industry has deftly handled the covid related adversities, and has come out a winner. It remains to be seen how this will be continued into the future years, says R Jayaraman.
Is this good news for the Indian auto industry?

A spate of renewed interest to ‘rev’ up the Indian auto industry could not have come at any other time. Reeling from an acute shortage of chips, which affected the supply chain adversely, the industry is seeing some positive signs of recovery after a disastrous two years. Auto sales have been down since 2020, and the whole gamut of the product-mix has been on the downslide- two wheelers, three-wheelers, four-wheeler passenger vehicles, commercial vehicles of all types- in general, the whole ‘nine yards. There has been a recovery in some segments, as seen in the Table 1, which shows the production of the Indian auto industry. 

Domestic sales have fared much worse (see Table 2). The only saviour was exports sales, to an extent (see Table 3).

While all the above parameters have improved in the year 22-23 till date, the industry is still not out of the woods. But Indian auto manufacturers must be complemented for the agility that they have shown, each and every one of them, in dealing with the tough situation. EV cars are already hitting the highs. As reported in one of the leading financial dailies, The Economic Times, according to Shailesh Chandra, MD, PV & Tata Passenger Electric Mobility, the EV car sales are likely to hit 50,000 in the FY 22/23, an increase of almost 30,000 cars over the previous FY. 

In view of the chips shortage and the consequent cuts in production mandated, many auto companies have thought it fit to invest in capex to produce EV cars. This would naturally take up the time of the company personnel usefully. One of the truisms of capital investments is that one should invest when the ‘chips are down’. That is, when the economy is going through a downturn, goods are available in quantities and at discounted prices. It’s just like the stock market, buy when low. So, many Indian auto companies used this lull to invest in the development of EV cars. 

Second, many two-wheelers and three-wheeler makers have done the same. The story of Ola is well known. It is expected to capture a large market share in the near to midterm. Others, like TVS, have come out with their own variants of the electric scooter. 

All these efforts can be termed as ‘building the future’ strategies, and, are timely, and will do a lot of good for the long-term prospects of the industry. Another area for long term investment is replacing fossil fuels by alternate fuels, other than electricity. Adding ethanol up to 20% has been tried out and is planned to be introduced in India soon. Recently, Transport Minister Nitin Gadkari announced that on September 28 he will kick off a trial project involving Toyota's new car that will be powered by flex-fuel

The PLI scheme is perhaps the best thing that has happened to the Indian auto industry, in so far as the chips shortage is concerned. There are already many proposals with the government for setting up such plants. Recently Vedanta has announced a plant in Gujarat. The Tatas have announced plans to get into this field in a big way. It is only a matter of time before many others show up. The GOI is also directly negotiating with the Taiwan government to find ways to open shop in India. These chip plants will not only benefit the auto industry but many others as well. 

According to a recent report in the Economic Times, India's semiconductor component market is likely to reach $300 billion in cumulative revenues by 2026, as 'Make in India' and PLI schemes will boost local sourcing of semiconductor components in the coming years, according to the report by the India Electronics & Semiconductor Association (IESA) and Counterpoint Research. (Eco Times, September 21, 2022). The PLI scheme, announced at a government support of Rs 76,000 crores, has been updated and made more user friendly. This speed bodes well for rapid development of the semiconductor/ chips industry in India. Else, the China story will repeat again. 

With the expansion of the domestic iron and steel industry, which supplies critical raw materials to the auto industry, the availability issue will ease. The cold rolling mill project of Tata Steel, installed in Jamshedpur in 1996, was the beginning of the manufacture of cold rolled sheets for the auto industry. And that mill, along with others, has been able to meet the demands for high quality cold rolled sheets and strips for the end user industries. Now, the GOI has announced a PLI scheme for the production of specialised steels, for which more than 50 offers have been received, with more in the pipeline. These developments will have a salutary effect on the rapid expansion of the auto industry, as well as making the long-held dream of ‘the body in white’, a project taken up for development in Europe and the US jointly, to provide light weight steels to cars, to reduce their weight and improve fuel efficiency, lower emission levels and better road handling. 

Along with the many steps taken to support investment in new tech, changes are coming up in support systems, such as, improved roads, safer roads (after the death of the chairman of the Shapoorji Pallonji Group, Mr Cyrus Mistry). Improved cabins for commercial vehicles (trucks) will make the life of the driver and the helper more comfortable, improve productivity and bring down the costs of transportation by reducing the travel times. 

Indian consumers have given the thumbs up for the innovations introduced in the market so far. For example, sale of EV scooters has been growing at a good clip, notwithstanding the high price of Rs 1 lakh and upwards. Similarly, the new EV passenger cars from Tata and other manufacturers have found market acceptance. Tata Motors, in partnership with Tata Power, has come out with an innovative idea to provide electric charging stations, which should help the sales further. 

Overall, it appears that the Indian auto industry has deftly handled the covid related adversities, and has come out a winner. It remains to be seen how this will be continued into the future years. Given the emphasis on sustainability, green manufacturing, climate change etc, challenges will emerge, but the industry has to come out with continuous innovations to overcome these. 

About the author:
R Jayaraman is the Head (Capstone Projects) at Bhavan's S P Jain Institute of Management & Research (SPJIMR), Mumbai. He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.

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