Transformation of the Automotive Industry Post COVID
The automotive industry transformation in India is undeniably a vital part of the Indian economy, accounting for a significant chunk of the GDP, offering employment to over 37 million people directly and indirectly. As per the reports issued by the Reserve Bank of India and the Government of India, the manufacture of transportation equipment alone forms 10 – 12% of the manufacturing sector’s gross value added (GVA).
Automobile sales in India, the world’s fifth-largest market, fell to a six-year low in the fiscal year that ended in March, according to the Society of Indian Automobile Manufacturers (SIAM). A structural slowdown, caused by a series of regulatory reforms, along with a sputtering economy, had put vehicle sales in the slow lane in 2019-20. The Covid pandemic further exacerbated the sluggish sales.
Covid & the Automotive Industry
The start of the Covid-19 outbreak and the consequent lockdowns negatively impacted the sector. The sector faced further hammering on account of slowed economic growth, poor consumer mood, BS-VI transition, changes to axle load regulations, liquidity crisis, low-capacity utilization, probable bankruptcies etc., spiralling the industry in a downward spiral. What began as a minor spark in September 2018—a drop-in CV sales following a regulatory adjustment in axle-load norms—turned into a full-blown wildfire of a magnitude not witnessed in the past two decades. Decreased credit availability, declining demand (particularly in infrastructure and mining), and reduced discretionary expenditure contributed to a drastic dip in vehicle sales.
Car sales in China fell by 92% within the first half of February. The Indian auto industry suffered estimated losses of over Rs. 2,300 crore in revenue for every day of suspension during the countrywide lockdown along with an estimated job loss of 3.45 lakh, according to a parliamentary panel report released to Rajya Sabha Chairman M Venkaiah Naidu. Recruitment halted. 286 car dealerships shuttered down for good. The automobile industry, responsible for 7% of India’s GDP, is now in decline, with several automakers experiencing more than a 30% year-on-year drop in recent months. The five-year (2015-16 to 2020-21) CAGR for the overall auto industry dropped from 5.7% growth to 2% as against 2010-11 to 2015-16. The tremors of the pandemic have undeniably left the world in shock, in every aspect.
Looking ahead
More recently, however, the situation has been looking brighter and more optimistic. Notwithstanding the ongoing COVID-19 battle, the Indian automobile industry appears to have overcome most of its impediments, with most of them already in the rear-view mirror now.
There have been two key fallouts of the COVID -19 pandemic that will change the industry forever.
One has been the rapid adoption of technology which was the need of the hour to keep the wheels moving during lockdowns and partial reliefs extended consequently.
The second was the heightened awareness across the globe on the contribution of fuel emission from transportation to the environment. Amidst the unimaginable troubles and losses that Covid brought upon mankind, the forced lockdowns gave nature a chance to replenish its resources without any human intervention.
With roads free of vehicles for the first time in like forever, one witnessed a transition of New Delhi’s polluted grey skies to clear and quiet blue skies, bringing to light the intensity of traffic-generated pollution. In March 2020, the air quality index in Delhi, was reported, to reach a 5-year high on account of the country’s first nationwide lockdown. The CPCB recorded a 44 % drop in PM 10 levels in the capital from the previous day on March 22-23, 2020. The PM 2.5 decrease was 8% on the day of the curfew, but it dropped to 34% the next day due to minimal combustion activity in and around the city.
The reduction in NOx levels highlighted that the number of on-road cars is inarguably the major contributor to the poor air quality. A 51% reduction in NOx levels, and a 32% reduction in carbon monoxide levels, were recorded on March 22-23 compared to March ‘21.
The COVID-19 pandemic has compelled the Governments to hasten their efforts to look at ways and means to preserve and rejuvenate nature by taking significant, meaningful steps to curb pollution. The commitment towards the same was iterated, by many a nation, at the recently held COP26.
One fallout of this summit has been that the direction given to the automotive sector to accelerate its focus on Electric vehicles. Automakers are now, mandated to reconsider their short-term strategy, for reinventing mobility in the present — and in the future.
As a result, the automobile sector has to change gears quickly. Speed-up the transition that had started a few years back had not quite picked up the momentum. The focus of the research and development efforts of the sector needs to be on developing and adopting solutions that promote efficiency and sustainability.
Racing to the future
In India, with the country’s focus one being a zero-emission nation by 2070, efforts are already on. As a first step, the focus is on incentivising the commercial segment to be EV-enabled. Stimulus programs, such as the Fame-I & Fame-II by the GOI, are being further enriched by state-level programs. These programs are designed, to create demand, encourage the development of charging infrastructure (which is still at a nascent stage) and offer SOP’s to manufacturers to help them become more price-competitive to their IC counterparts.
The road is rife with challenges both the government and players in this segment have their jobs cut. Right from, winning customer confidence and traction, developing an adequate charging infrastructure both for commercial and individuals, to getting the component supply chain right by making it lucrative for component manufacturers to start making components for Electric vehicles to solving the challenge with Battery that is currently import-dependent and the most critical & expensive component of the end product- are a few of the early hurdles they will need to clear.
This environmentally driven power shift can potentially be an epic transformation if things play out as per the analysts’ predictions. Despite the significant progress of the automobile industry over the last 50 years, the adoption of new technology or improvements in production has been rather slowly across similar platforms and by similar firms. With the acceleration of the development of electric vehicles (EVs), this is staged to change, not only for passenger cars but for the whole transportation industry. Battery-powered vehicles will soon be a standard offering from the Automobile manufacturers, rather than a speciality product. Oil firms will expand by producing cleaner energy sources— natural gas, a fossil fuel that burns cleaner than coal or oil, but increasingly and eventually renewables. Utilities will construct and run a “smarter” power grid, designed for a larger, more intricate electrical system, in which breeze and sun rays create a production cycle, cushioned by a buffer of energy storage devices and cables.
Awaiting “e-day”
Market observers are racing to the conclusion that the future is electric. As per IHS Markit, an energy-analysis firm, “e-day” is likely to occur in approximately five years, when the cost of manufacturing the guts of a battery-electric small or midsize car will have plummeted to the cost of manufacturing an internal-combustion vehicle.
In 2020, a category known as “plug-in electric vehicles” accounted for just 4% of worldwide new car and light truck sales and 0.7 per cent of the entire global fleet on the road.
However, by 2026, electric cars will account for 15% of new light-vehicle sales and 4.1 per cent of on-road light vehicles, according to IHS predictions.
Shift already in gear?
Major automakers have already begun to invest in the transition to EVs.
GM has pledged to go green by making all of its worldwide operations and cars carbon neutral by 2040, to sell solely zero-emission vehicles by 2035. By the middle of this decade, the firm expects to sell 30 electric models worldwide.
As stricter EU emission regulations compel all automakers to switch, the German automaker, BMW, has raised its electric vehicle sales targets. BMW now hopes to sell 10 million fully electric vehicles over the next decade, up from its prior goal of 4 million.
By 2030, Volkswagen expects electric vehicles to account for 60 % of its European sales and 50 % of its global sales. Although no specific timetable for the phase-out of internal combustion engines has been decided, the company aims to be carbon neutral by 2030. It wants to sell one million electric vehicles by 2021 and invest 46 billion euros in the conversion effort over the next five years.
In April, Daimler, the Mercedes-Benz manufacturer, announced its intention to speed up the transition to electric vehicles. It aims to double the sales of electric and hybrid vehicles this year. It aims for 25% of its sales to be electric by 2025, and 50% by 2030. Stellaris, the group containing Jeep, Chrysler, Fiat, Peugeot, Citroen, and Opel, has announced that it will cease investment in the development of new internal combustion engines. By 2030, it wants electric and hybrid vehicles to account for 70% of all sales, up by 14% this year.
In the domestic market, to achieve the aggressive goals set by the government to become a zero-emission country by 2070, the government will need to press the accelerator when it comes to enabling the development of the charging infrastructure for individuals and defining charging sockets standards. If socket standards are not defined soon, there be a peppering of underutilized commercial charging stations across geographies with an ability to serve select vehicles only.
Individual ownership will require the ability to charge the vehicle at home. Our current constructions of residential infrastructure are not equipped to accommodate the requirement. While norms are being put in place to mandate new constructions to incorporate the capability of installing charging points for cars, the real challenge is in enabling the existing residential infrastructure. The same will be further amplified if charging sockets are not standardized.
The focus on EV is opening up new opportunities in the industry.
The need for reliable, light quality batteries at a lower price is one dire need of the industry today. The answer lies in setting up manufacturing units for producing Lithium-Ion Batteries. Tata Group, taking the lead, has announced a committed investment of Rs 4,000 crore to set up a lithium-ion battery plant in Dholera Special Investment Region (DSIR) in Gujarat.
GOI has approved a production linked incentive (PLI) scheme with an outlay of ₹18,000 crores to promote manufacturing and export of Advanced Chemistry Cell Batteries and its storage facilities. Manufacturers would have to commit to setting up a manufacturing facility of a minimum capacity of 5GWh and ensure a minimum 60% domestic value addition within five years. The government hopes to save ₹2-2.5 trillion on account of the reduction in oil imports during this programme, due to the increased adoption of electric vehicles. The scheme is anticipated to accelerate the adoption of zero-emission vehicles.
With component Manufacturers being encouraged to make components for the EV segment to reduce the load on imports, employment opportunities are on the rise. The key challenge with the new opportunity is that it will require new skills. Skilling organizations need to up their act, ramp up their courses to create the right pipeline to fill the upcoming requirements in the job market.
For us as a country, to meet the aggressive target, all wheels need to be well-oiled and move in tandem for the right results. A hiccup at any one end will cause the journey to falter and fall short of results.
Judging by the pace of this transition at a global level, the future may be closer than it appears. The automotive industry has genuinely acknowledged the flaws in its methods and taken steps to improve them. Keeping the original objectives of sustainability and environmental conservation in mind, fasten your seatbelts and zoom to a cleaner and greener tomorrow!
Raj Mehta
Founder and Managing Director
Raj Electromotives Pvt. Ltd. & Greta Electric Scooters
