The aftermath is almost never ever good, whenever the news flashes ‘Share market goes down’. Today, the first working day after the Indian Government released the Budget for 2019, has been such a day. Although the Government seems to have put in a considerable amount of thought to accelerate our adoption of EVs or Electric Vehicles and providing a much-needed boost towards green mobility, it appears that they might’ve neglected the current status of the auto industry which appears to be facing all kinds of obstacles resulting in slow-downs.
The Auto sector showed first signs of bleeding as the BSE Auto Index fell 2.5% over the intratrade day. Major players from this sector saw their share prices depreciate, in the hours of the day, majorly due to the new policy schemes devised by the Finance Minister. Market leaders like Hero MotoCorp, Maruti Suzuki India, Tata Motors and Mahindra & Mahindra witnessed the fall in their share prices by 4%, 3.14%, 2.84% and 2.15% respectively.
EVs aren’t the only reason for the downfall. Other external factors which contribute towards ICE vehicle manufacturing have also been indirectly hit by the latest policies. What are they? Let's find out
Manufacturers across the stable have reported a decline in sales figures. On comparing the numbers from 2018, the auto industry saw a total decline of close to 18% in sales numbers. Even though Maruti Suzuki steered clear of its competition and topped the sales chart by a hefty margin, it still reported a dip of around 17%. Companies like Nissan, Honda and Jeep have reported a steep collapse with numbers going as low as 36%, 41% and 46% respectively.
Carmakers have had to resort to temporary production halts in order to curb down the inventory which lies stagnant due to a scarcity in sales. According to a report by SIAM or Society of Indian Automobile Manufacturers, the auto industry reported a 20.6% decline in domestic sales figures for the month of May, the steepest drop in 18 years.
Firms like Tata and Mahindra had publicly announced their plans to cease production with the duration ranging from a week to a fortnight, during the months of May-June 2019. Market leader Maruti Suzuki had to devise a two-stage production shutdown with similar durations, to keep itself from incurring a situation where supply outgrew the demand.
Negative Sentiment against ICE cars
Although the Government’s push towards electrification is completely understandable, its latest policies towards existing fossil-fuel powered vehicles can be termed as a bit, harsh. According to the 2019 Budget, carmakers operating in the subcontinent will now have to face a rise in customs duties on auto parts, certain additional cess on the prices of petrol and diesel (which wasn’t going north already) and a further increase in Basic Customs Duty for certain CBU (Completely Built Unit) vehicles from 25% to now, 30%.
(No) Monsoon Madness
If you’re a cricket fan, you might be familiar with the phrase “rain plays spoilsport”. A little tweak to that phrase, by adding a no in front of rain, can make it a suitable reference for carmakers' current situation. As you would be aware, India’s economy depends heavily on agriculture. A prosperous agricultural situation requires healthy rainfall. A healthy rainfall means abundant food supply. Abundant food supply means food prices stay low. People now get an opportunity to save and hence, spend on consumer goods including automobiles. Everybody stays happy.
However, everything’s not that great at the moment. Rainfall hasn’t been consistent this season. Chances of a prosperous agricultural output have been reduced by a significant margin. No rainfall means less food output. Less food output implies a rise in the prices of food supplies across the country. This will lead people to spend more on food than usual, taking away their potential savings which they would have spent on purchasing automobiles.
Although this factor won’t cause prominent damage to the luxury segment, it will surely make its impact felt in the entry-level hatchback and SUV segments and a lot bigger hit in the two-wheeler segment.
What can you do?
Yes, I do believe the Government launched brilliant initiatives which favour the manufacturing and purchasing of EVs but look around you and answer this - do we have enough infrastructure or charging stations for us to shift to electric vehicles? Or do we even have affordable battery-powered vehicle options to choose from?
I believe there is still time before we made a complete shift to electric vehicles. What can we do until then?
Very similar to one of those go green initiatives. In order to keep getting fresh oxygen, you are asked to plant a tree. Similar mechanism here - to keep getting better automobiles, you need to keep contribute towards healthy sales.
Do your bit. Spend your money. Buy a car!