How 2 disruptions are reshaping India’s automobile industry

New Delhi: For India’s top carmakers, it’s the best of times and the worst of times.

2017 has been a blockbuster year for the country’s largest carmaker, Maruti Suzuki India Ltd. Its models took the top five spots in sales for the first time in a decade. Its market share has risen to 51%, the highest in 10 years. And from all available evidence, 2018 may be even better.

That’s the good news.

The bad news is that things could change quickly, and the recent history of business is littered with examples of how quickly the tide can turn.

This time, India’s top carmakers could be at the short end of the stick, and they know it. What lies ahead is a long and hard struggle as multiple disruptive forces reshape the market.

The automobile industry is at the cusp of a once-in-a-century disruption with the advent of electric vehicles

Kenichi Ayukawa, managing director and chief executive officer (CEO) of Maruti Suzuki, under whom the carmaker has stamped its complete dominance over the Indian market, says the company may have to re-invent itself and “start again from zero”.

There are reasons to be wary.

The automobile industry is at the cusp of a once-in-a-century disruption with the advent of electric vehicles.

That’s not all.

Alongside is a more near-term worry. Carmakers have been asked by the government, keen to reduce pollution, to leap-frog from the current BS-IV emission norms to the much stricter BS-VI by April 2020, skipping an intermediate level.

While success is not guaranteed, Maruti Suzuki is pulling out all stops to make sure that it’s not left behind.

“We are trying to challenge ourselves as time has come to change the game. Hence, we have to review (our strategy) and start again from zero,” Ayukawa says in an interview.

Maruti Suzuki CEO Kenichi Ayukawa says the company may have to re-invent itself and ‘start again from zero’, as far as electric vehicles are concerned. Photo: Pradeep Gaur/Mint

Maruti Suzuki CEO Kenichi Ayukawa says the company may have to re-invent itself and ‘start again from zero’, as far as electric vehicles are concerned. Photo: Pradeep Gaur/Mint

The coming events, automobile analysts say, will allow Maruti Suzuki’s rivals to play catch-up with the market leader.

The dynamics of the Indian automobile market are set to undergo a sea change as global automobile giants such as Renault SA, Ford Motor Co. and Nissan Motor Corp. will use their expertise in electric vehicles (EVs) to undermine current leaders.

“The industry dynamics will change and the players that are leaders today… will not necessarily remain leaders after the electric vehicle dust settles down,” Pawan Goenka, managing director, Mahindra and Mahindra Ltd, said in an interview.

Mahindra is the largest electric vehicle manufacturer in the country and the first auto maker to invest in electric technology in India, giving it an edge over rivals.

“New players who are either non-existent or are small players today could become leaders after the dust settles down,” Goenka said.

Carmakers, at least those that are least prepared for an electric future, have got a breather with the government saying that it won’t announce an Indian EV policy exclusively for electric vehicles, in an U-turn from its earlier position, and instead support all kinds of sustainable mobility solutions.

The industry dynamics will change and the players that are leaders today… will not necessarily remain leaders after the electric vehicle dust settles down– Pawan Goenka, managing director of Mahindra and Mahindra

“There is no need for any policy now,” Nitin Gadkari, minister for road transport, said at a press briefing on 16 February. (read more)

This is a remarkable volte-face, given that as recently as in January, Gadkari had said the policy was awaiting approval from the Union cabinet.

He had earlier outlined the government’s ambitious plan to shift to electric vehicles by 2030.

On 12 March, Mint reported that the government’s think-tank NITI Aayog has tasked at least seven government ministries with framing guidelines to encourage the use of electric vehicles.

Once framed, NITI Aayog will put these guidelines together as an action plan for promoting the use of electric vehicles, four people aware of the development said, requesting anonymity.

Notwithstanding the EV policy uncertainty, companies such as Maruti Suzuki and Toyota Motor Corp. are preparing for a time when the now ubiquitous internal combustion engine-run cars become a relic of history.

Suzuki Motor Corp., the parent of Maruti Suzuki, is collaborating with Toyota to make small and affordable electric cars in India.

For Suzuki, protecting its turf in India is linked to its own survival as half of its revenue comes from the Indian unit.

Toyota Motor Corp., on the other hand, has invested heavily in hybrids and hydrogen fuel cell-driven vehicles globally instead of electric. It would have had the most to lose if the government encouraged solely electric vehicles.

Still, the company has started to develop electric vehicles in China and has also formed a joint venture with Mazda Technologies Ltd and Denso Corp. Ltd in Japan for developing the requisite technologies for electric vehicles.

The electric vehicles wave will probably hit the Indian shores a few years later than earlier estimated, but another disruption is already keeping Indian automobile makers on their toes.

The electric vehicles wave will probably hit the Indian shores a few years later than earlier estimated. Photo: Bloomberg

The electric vehicles wave will probably hit the Indian shores a few years later than earlier estimated. Photo: Bloomberg

In 2016, the Union government decided to skip the Bharat Stage-V (BS-V) emission norms and brought forward the date of implementation of the BS-VI emission norms by two years to 1 April 2020, an unprecedented move in the global automotive space.

As a consequence, carmakers had to earmark substantial amounts to upgrade their existing products to meet emission norms at a time when the economy was rattled by policy decisions such as demonetisation and the implementation of the goods and services tax (GST).

Two of the country’s biggest two-wheeler makers—Honda Motorcycles and Scooters India Pvt. Ltd and Royal Enfield—have already announced that they will not launch any new products till 2020. Honda two-wheelers’ (HMSI) plan to establish its fifth manufacturing plant has been frozen despite the company’s factories operating at almost full capacity.

Underscoring the enormity of the task at hand, Minoru Kato, president and chief executive of HMSI, said, “We are considering a fifth manufacturing unit but adhering to BS-VI emission norms by 2020 is the biggest concern. Not only Honda, other manufacturers will also have to comply with the norms. So production cost will increase. Hence, we need to increase price as well. So, the total motorcycle industry sales will decrease in 2020.”

In November 2017, Siddhartha Lal, managing director of Eicher Motor Ltd (which owns Royal Enfield), said the company will not launch any new models in the next two years and the next new offerings will be just before the BS-VI emission norms kick in.

Royal Enfield and Honda two-wheelers will not launch any new models until 2020 when the BS-Vi emission norms kick in. Photo: Bloomberg

Royal Enfield and Honda two-wheelers will not launch any new models until 2020 when the BS-Vi emission norms kick in. Photo: Bloomberg

Car launches have also come down by half over the past four years as automobile manufacturers struggle to adapt to rapidly changing regulations, industry executives said.

There were 12 model launches in 2015. That plunged to five each in 2016 and 2017, according to Morgan Stanley Research.

The lacklustre Delhi Auto Expo 2018 in February is a testament of the apprehension among auto makers.

An updated Maruti Suzuki Swift was the only vehicle to be unveiled on the second day of the show, unprecedented in the history of South Asia’s biggest auto show.

Most manufacturers, including Volkswagen group, Ford India Pvt. Ltd, Nissan India Pvt. Ltd and Jaguar and Land Rover India, did not participate in the biennial show.

The ones that participated, such as Maruti Suzuki and Hyundai Motor, also did not showcase any new models that would be launched over the next year-and-a-half.

For Pratap Bose, head of designing at Tata Motors Ltd, complying with the new emissions norms is never a challenge, but “timelines should not shift and move as the challenge is to plan to a particular date”.

The updated Maruti Suzuki Swift was the only vehicle to be unveiled on the second day of the Delhi Auto Expo 2018.

The updated Maruti Suzuki Swift was the only vehicle to be unveiled on the second day of the Delhi Auto Expo 2018.

The automobile industry, contrary to the decision made by the government on electric vehicles, was looking for a direction in which the government wants them to move before investing billions of dollars in electric mobility.

“We need a clear picture from the government, but we cannot wait. Still, we are waiting for a detailed road map to be proposed and developed by the NITI Aayog,” said Y.K. Koo, managing director and chief executive officer, Hyundai Motor India in an interview.

Ford India Pvt. Ltd’s managing director Anurag Mehrotra concurred with his Hyundai counterpart and said, “Till such time we have a policy framework, it’s a little difficult. It is like shooting in the dark. So you have to be careful that you get your policy and once it is done, we will be able to come back.”

According to Puneet Gupta, associate director at global automotive sales forecasting firm, IHS Markit, China has already announced the electric vehicles policy last year. This has helped all Chinese and global vehicle makers, and they have started working on electric cars in China on a war footing.

“We need a clear picture from the government (on electric vehicles), but we cannot wait. Still, we are waiting for a detailed road map to be proposed and developed by the NITI Aayog– Y.K. Koo, managing director of Hyundai Motor India

Maruti Suzuki, though, did not wait for the government to formulate an India EV policy before taking crucial business decisions pertaining to electric vehicles.

For instance, the company has already announced that it will launch its first electric vehicle in 2020. Besides that, the company will also set up its own charging station for potential customers as the lack of charging stations is one of the biggest impediments facing the industry. It has also started to conduct a survey on customer expectations from electric vehicles.

To be sure, this is not the first time that Maruti Suzuki is faced with a big challenge.

In 2011-12, when diesel car sales started to increase at a brisk pace, the company was found wanting.

Rivals Mahindra and Mahindra and Hyundai Motor chipped away at its market share, until it touched a low of 42% during the year; but the company took a swift decision to buy diesel engines from Fiat Chrysler Automobiles NV and over the next five years, the company steadily regained share with new models.

This time, the company has tied up with Toyota Motor Corp. and will set up its own lithium-ion battery manufacturing plant in Gujarat way ahead of other manufacturers.

Two other embattled passenger vehicle manufacturers—Mahindra and Mahindra and Tata Motors—have also been investing heavily in the development of electric vehicles.

Maruti Suzuki has tied up with Toyota to set up its own lithium-ion battery manufacturing plant in Gujarat, way ahead of other manufacturers

“We think in India also, OEMs (original equipment manufacturers) have made up their mind to invest in electric car and technology, but more clarity on electric policy can lead to ideas translating into business, which means more jobs and more revenues for the Indian automobile industry,” added Gupta of IHS Markit.

According to a senior industry executive, the automobile industry is extremely resilient, whatever the adversity, and has managed to emerge stronger over the years.

As of now, there are too many impediments on the road to the successful adoption of electric vehicles in India.

The availability of charging stations and sourcing of lithium are probably the two major roadblocks that need to be overcome.

Recently, Energy Efficiency Services Ltd (EESL)—a public sector unit under the ministry of power—had to defer the date of taking delivery of electric vehicles from Tata Motors and Mahindra and Mahindra due to the lack of charging infrastructure.

EESL recently had to defer the date of taking delivery of electric vehicles from Tata Motors and Mahindra (above) due to the lack of charging infrastructure. Photo: Aniruddha Chowdhury/Mint

EESL recently had to defer the date of taking delivery of electric vehicles from Tata Motors and Mahindra (above) due to the lack of charging infrastructure. Photo: Aniruddha Chowdhury/Mint

Also, once the BS-VI emission norms come into effect on 6 April 2020, manufacturers and suppliers would need at least five years to get a return on the equity.

The vehicle manufacturers would also need to set up an alternative ecosystem, as mentioned by the Ayukawa, in the next decade or so in order to engineer a smooth transformation to electric vehicles.

“We have to develop the electric vehicle first and compete in the market. As manufacturers, what we can do is to supply good vehicles to the market. That is the only way. Without a product, we cannot do anything,” opined Ayukawa.

First Published: Fri, Mar 23 2018. 07 50 AM IST

Nino Plevnik

I am an electric cars lover. I love our planet and want to leave it in good condition to our children. One of the good ways to do this is to reduce harmful emissions into the atmosphere. As a technical person I worked on computers, hardware maintenance and programming. Otherwise I like advanced technologies, music, books, movies, life and nice weather.

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