Growth On The Cards
Currently accounting for 7-8 per cent of the country’s gross domestic product (GDP), the Indian auto industry is poised for a sustained double-digit growth in the next decade, despite policy changes and macro-economic headwinds such as the goods and services tax (GST), diesel-engine ban, demonetisation, etc. Over the next five to seven years, the industry will go through a transformative phase in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and BNVSAP safety norms. In fact, political stability, increasing competition and rising consumer expectations will shape the way auto manufacturers or suppliers do their business in India.
Industry analysts predict that the Indian automobile market will become the third largest passenger vehicle market in the world in the next decade.
“The automotive industry, over the last many decades, was constantly plagued by disruptive forces and other challenges. Going forward too, it won’t be a cakewalk. But despite technological disruptions and policy changes, we foresee a CAGR of 8-10 per cent over the next decade,” says Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers.
Maruti Suzuki India chairman R. C. Bhargava concurs with Mathur. “Given the low penetration of cars in India, a CAGR of 8 to 10 per cent a year can be expected in the next decade,” he says, suggesting that shared mobility will, in fact, have a limited impact on sales.
Says Volvo Eicher Commercial Vehicles CEO Vinod Aggarwal, “The automotive industry’s long-term outlook remains positive owing to robust fundamentals such as high GDP growth, adequate financing availability, higher per capita GDP, rising disposable incomes, favourable demographics, and rising consumer expectations. Moreover, the current government’s efforts to implement the GST, build smart cities, and revive key sectors such as mining and infrastructure should boost the commercial vehicle industry, a barometer of the country’s economy.”
Investments & New Players
In order to be in sync with the burgeoning demand, a lot of international automakers are foraying into India, while the existing players are making fresh investments to hold on to their marketshares. Some of the established players such as Maruti Suzuki, Hyundai, Honda and Hero MotoCorp are expanding their facilities or building new ones in the country to ramp up their output, while new players such as Kia Motors, PSA Peugeot Citroen and Daihatsu are aiming to gain a foothold in the market.
What the Government is Doing
In its bid to curb tailpipe emissions and dissuade people from buying fuel-guzzling and polluting vehicles, the government is working on numerous measures.
The Ministry of Road Transport & Highways, which was actively working on a policy to replace old polluting medium and heavy vehicles with fuel efficient vehicles, is expected to roll out a voluntary vehicle fleet modernisation programme (V-VMP) once the BS-VI emission norms come into force in April 2020. However, the scrappage policy will incentivise buyers of new commercial vehicles in the initial phase, keep passenger vehicles out of its ambit and won’t cover two-wheelers in the first phase.
Furthermore, hybrid vehicles — considered a bridge between fossil fuel-based engine vehicles and fully battery-operated electric ones — may eventually replace Internal Combustion Engines to power segments such as light commercial vehicles and passenger and utility vehicles in the next decade. It is widely believed that since majority of Japanese car-making giants are known for their expertise in hybrid vehicles than pure EVs, the government has relented on its earlier stand on going for 100 per cent e-mobility by 2030.
“The auto industry over the next 10 years will see relentless disruptions. The predominant technology challenge that will keep OEMs (original equipment manufacturer) engaged for the next decade will be the choice of appropriate energy source to power automobiles. For companies and policy makers in India, the choice is between waiting for battery electric vehicles (BEV) to reach affordable price points as well as development of the ecosystem or to move to an intermediate option of hybrids to manage pollution in the short to medium term. Given the challenges in faster adoption of BEVs, it’s quite probable that it would take a decade or two for this technology to make a dent in the sale of fossil-fuel vehicles, which makes a case for parallel adoption of hybrids to reduce impact of pollution caused by higher number of vehicles on the road as well as rising traffic congestions. However, BEVs could start penetrating segments such as scooters, autorickshaws and even buses much faster and deeper than the passenger vehicle industry due to affordability of electric powertrain solution to customer as well as lesser difficulty in creating the ecosystem,” points out V. G. Ramakrishnan, founding partner and managing director of Avanteum Advisors LLP.
Industrial Revolution 4.0 & the Impending Threat
Industrial Revolution 4.0, a term used for the current trend of automation and data exchange in manufacturing technologies, is gaining a lot of eminence. It includes elements such as artificial intelligence (AI), robotics and digital interfaces, etc., which are believed to make the traditional workforce redundant. The revolution can actually have a domino effect on the economy, impacting roughly 3.5 million people directly engaged in designing, making and selling automobiles. However, the impact may not be that steep as India is adopting semi-autonomous manufacturing systems across facilities.
Megatrends & the Road Ahead
A lot of industry analysts are unanimous in their view that the traditional “automaker” will cease to exist as mega-manufacturers take up contract manufacturing for multiple brands in facilities that will churn out between 0.5 million to 1 million units per annum in case of four-wheelers and 7.5-10 million in case of two-wheelers.
“Imagine Foxconn making automobiles. Or Magna / Karmann setting up mega-sites across the world. This will help bring prices down by 30-40 per cent from current levels and see a massive raise in quality levels across the board. Today’s automaker will become an “auto brand” with aspects such as design, engineering, materials sciences and service as proprietary, but outsourcing manufacturing, distribution and sales,” insists Avik Chattopadhyay, co-creator of business transformation consultancy Expereal.
The other major change would be in the way automobiles are manufactured. The current way of designing an automobile, especially a four-wheeler, is considered old fashioned, cumbersome, inflexible and cost inefficient. “Right now, a vehicle is built outside-in. It needs to be built inside-out. A few innovators are working on this process. In fact, Tata Racemo is an example of the same design and manufacturing principle. Making cars in smaller batch sizes will be profitable. New materials will be used in place of steel to allow both flexibility and lighter structures. Evonik has been working on its Light Compact Car project for more than a decade now. One key step by a volume manufacturer and the entire scenario will change. Maybe a mega-manufacturer is the answer,” says Chattopadhyay.
He further suggests that traditional brick-and-glass showrooms will cease to exist. “For years, automakers have forced the customer to drag himself / herself to showrooms even in today’s digital age when all product details, reviews and evaluations are available online. This is done only for ego gratification of building large edifices that are gradually becoming like appendix. Auto brands will be forced to tear down these unnecessary structures, bring down operational costs and focus only on robust online engagement, test-drive experiences and service centres,” adds Chattopadhyay.
