After posting robust 24% and 37% growth in FY18 and FY19, the industry has reported a 11.64% drop in sales to 267,198 units as compared to 302,383 units sold in the same quarter last fiscal, said a SIAM data.
The three-wheeler industry is in for degrowth in the current fiscal after years of robust growth. Both the domestic sales as well exports saw degrowth in the first quarter of current fiscal (April-June) due to multiple headwinds, including NBFC crisis, emergence of electric models, high base and changing regulatory environment and economic scenario at export markets.
After posting robust 24% and 37% growth in FY18 and FY19, the industry has reported a 11.64% drop in sales to 267,198 units as compared to 302,383 units sold in the same quarter last fiscal, said a SIAM data. While the industry saw a decline of 7.35% in domestic sales during the quarter under review to 149,797 units (161,673 units), exports too declined sharply by 13% to 125,179 units (143,841 units), SIAM data added. Interestingly, exports had contributed almost equal to the domestic sales during the last two years.
All the players, including market leader Bajaj Auto, have reported a degrowth in the domestic sales as well in exports. Bajaj Auto, which had done exceptionally well in FY18 and FY19 fiscals on both fronts, saw its overall sales decline by 18.79% to 155,260 units in the quarter under review. While its domestic sales degrew 9.35% to 85,597 units, exports declined sharply by 24.15% to 76,902 units.
Similarly, Piaggio Vehicles, the second largest three-wheeler player, reported a 6.65% drop in its overall sales, with domestic sales falling by 6.03% to 37,966 units. However, the company reported a growth of 13.15% in exports during the quarter to 9,932 units.
TVS Motor reported a 3% drop in domestic sales during the quarter to 2,819 units, while its exports contributed significantly to its overall sales with a growth of 17.48% to 36,706 units, the SIAM data said. Other major player, Mahindra & Mahindra, saw its overall sales decline by 9.71% in Q1 to 12,715 units.
According to an Icra analysis, “The industry had grown by 24% and 37%, respectively during FY2018 and H1 FY2019, supported primarily by relaxation of the permit regime in key states in India. The growth in the domestic market hit a roadblock after a dream run in FY2018 and H1 FY2019, due to the base effect catching up and the NBFC crisis impacting the financing avenues available to the segment.”
Sruthi Thomas, senior analyst, Icra Ratings, said: “The abolition of permit regime in large three-wheeler markets like Maharashtra and Gujarat along with issuance of fresh permits in states like Delhi, Karnataka, Andhra Pradesh and Telangana had extended the much-needed impetus to the domestic three-wheeler volumes in FY2018 and H1 FY2019. However, the segment has declined since the latter half of FY2019, impacted primarily by the high base and the liquidity constraints in the economy, which has blocked potential financing avenues available for three-wheeler buyers.”
Moreover, many states have started working aggressively on their electric vehicle policy, of which electric three-wheelers are a prime focus area, and states like Karnataka proposing phase-out of two-stroke autos and ban on diesel vehicles in Bangalore, the southern market is expected to witness significant changes going forward, she added.
According to her, “Export volumes from India have been volatile over the years, in line with the economic scenario and regulatory developments in key markets. For instance, economic downturn in African markets like Nigeria and adverse legislative developments in Sri Lanka impacted the export volumes significantly in FY2016 and FY2017. Subsequent economic recovery in Africa led the recovery in export volumes in FY2018 and FY2019. Likewise, adverse regulatory developments in Egypt impacted exports in the current fiscal.”
With annual sales of around 3 lakh units, Africa is the largest export market for Indian three-wheeler OEMs. However, the market remains exposed to fluctuations, with volatility in forex rates and economic downturns impacting the demand. Nigeria and Egypt are the two largest markets in the region.
As the Egyptian government has been contemplating licensing of three-wheelers and banning free imports because of safety concerns and increasing crime rates, three-wheeler exports have been impacted during the current fiscal, she added.
Going forward, the increased focus of the Indian government on electrification of vehicles, especially commercial fleet in the country, would impact the dynamics in the domestic three-wheeler market over the medium term. Currently, although electric three-wheelers are priced at a significant premium as compared to their ICE counterparts (around 1.5x prior to subsidy and 1.1x post subsidy), they offer significant savings in terms of operating costs. The running cost for an electric three-wheeler is only 40 paise/km as compared to Rs 2.1-2.3/km for the conventional ICE-based three-wheelers. Hence, with the subsidy offered under the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles(FAME) scheme, which brings down the capital cost for buyers and adds to operational cost savings, electric three-wheelers are expected to break-even in eight months as against 9-10 months for diesel three-wheelers, Icra pointed out further.