Industries the world over are experiencing a slowdown due to the Coronavirus COVID-19 spread to various countries. The automobile industry is taking a substantial hit as several manufacturers shut production as a precaution, including Rolls-Royce, Fiat, Volkswagen Commercial Vehicles and many others. The Indian automobile industry is also witnessing a disruption in the supply chain which is bound to have short and long-term effects. We got in touch with Kearney, a global consulting management firm, for an analysis of the situation.
Effects on the automobile market due to Coronavirus pandemic as per Rahul Mishra, Principal, Kearney.
– What short- or long-term effects can the COVID-19 outbreak have on automobile production in India?
– Possible effects on the supply chain?
Rahul: COVID 19 has impacts that are both short term and (looking at the current situation) long term as well. In the short term, over the February-March period, the production of a few BS-IV models got impacted due to supply chain disruption in China. These were models that would have been assembled and sold in February -March. Given the non-availability of parts, even if it was just one part, the OEMs lost the window for this sale. This was a time-bound window as the models cannot be readied and sold after March.
Speaking about long-term impacts, the situation is gradually getting more concerning now. Most OEMs had inventory built up for BS-VI models for the first few months of Q1 FY 20-21. However, if the supply chain disruption is likely to get extended, then Tier 1 and Tier2 suppliers will get impacted. If the current disruption continues, the impact of this will be seen on OEMs in a few months. Earlier this disruption was in China, where the business is limping back to normal now. However, now the disruption is in other markets and at home as well. Our ability to contain and quarantine this over the next few days will be crucial in determining the extent of the impact.
– The Indian automobile market was just beginning to snap out of the worst sales slowdown in decades. Will the virus outbreak have an even worse effect on sales?
Rahul: It might be early to announce a verdict on sales deterioration due to slowdown. The sales, even without COVID 19 was expected to be sluggish for the first half of the FY. BS-VI transition, price increase, new models and performance stabilization was all expected. It may be early to say that the industry will see a supply constraint due to COVID 19 and therefore, sales will be down, resulting in unmet demand. There is fundamentally no new macro-economic problem that has caused a pause in economic activity and they should ramp up quickly as soon as the pandemic has been contained. On the demand side, one might argue that ‘social distancing’ may encourage people to avoid cabs and ride-sharing, which may potentially boost the demand for personal ownership of vehicles.
– Will it slow down the adoption of electric vehicles in India?
Rahul: Again, it might be too early to sound an alarm bell for EVs only. If the pandemic and the lock-down continues, the entire industry – conventional and EVs will get impacted. In the short term, yes – some models that were importing large Chinese kits and assembling in India, have been supply-constrained.
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