To move entirely to electric by 2023 may be difficult: Pawan Goenka, MD, Mahindra & Mahindra

Published: July 18, 2019 2:52:18 AM

The capitalisation of public sector banks and the credit guarantee scheme for NBFCs are very good news. The NBFCs take their loan paper and sell it to a bank and then recycle that money. This will restart after this announcement in the Budget.

electric vehicle, electric vehicle india, electric vehicle market, EV in india, indian ev industry,  auto industry,  auto industry news, Mahindra and Mahindra, Pawan Goenka, NBFC, industry news Pawan Goenka, Managing Director, Mahindra & Mahindra

By Malini Bhupta 

The slowdown in the auto sector seems to be worsening with every month, as cost of ownership continues to increase. To make matters worse, the deadline set to migrate to electric vehicles has spooked the industry. Mahindra & Mahindra’s managing director Pawan Goenka tells FE’s Malini Bhupta that while the direction is right, the timeline may be difficult to achieve. Excerpts:

How bad is the slowdown?
Auto sales decline of 18% in the June quarter is the worst since Q3FY01. Even the big slowdown of 2008 was not as bad as the current situation.

Analysts are trying to explain this slowdown. What’s causing this slowdown?
Even if I add up all the reasons for the slowdown, it doesn’t explain the kind of slowdown we are seeing. However, the tangible reasons are as follows: The biggest issue is liquidity and availability of finance. The money that the consumer had to put on the table is higher than before. Interest rates have not gone down.

Do you think the Budget did anything to address this problem?
The capitalisation of public sector banks and the credit guarantee scheme for NBFCs are very good news. The NBFCs take their loan paper and sell it to a bank and then recycle that money. This will restart after this announcement in the Budget.

What are the factors that have hit sentiment?
There are several right measures that have been taken by the government, but cumulatively they have increased the transaction price. The insurance measure is a good one but will increase the initial cost of purchase. The third thing is the 1% TDS on cars over `10 lakh, even though it is not a cost in that sense as you get a refund for it, it does increase transaction cost. In addition, last year the commodity prices rose very sharply, so OEMs had to increase their prices. All of this has added to transaction cost going up. For heavy commercial vehicles, the axle loading norm that came last year has devastated the industry.

Is the worst over for the auto industry?
The concern is that the worst is not over for the auto industry yet. On October 1, the safety norms come into effect. Nobody is saying they should not come in. But, this would mean that prices of some models will go up, which are the low-end model. This is a small dose compared to what will happen in 2020 when new emission norms come in. I want to reiterate that tighter safety norms and emission norms are a must for our country, I am just pointing out that it will have an impact on affordability and hence demand.

How much worse would it get for the auto demand if this not done by the government?
At the start of the fiscal, SIAM had given a forecast of 3-5% growth for passenger vehicles. I had said that the number would be slightly better. Clearly, what has happened in the first quarter puts that expectation at risk. As of now, I am not willing to say the full year growth will be lower. The reason for that is that I want to see what happens to financing following the Budget announcement.

What about electric vehicles? There’s much anger in the industry against the government.
The subject of EVs is rather controversial as many industry leaders have spoken against the government’s mandate to ban ICE engines in three-wheelers and two-wheelers. While the government is right, the industry leaders too are right in their own way. I would like to say EVs should be welcomed by everyone as it ticks many boxes – clean, no oil import, future technology, puts no strain on roads due to pollution at least.

The two reasons why India wants electric is to reduce burden of oil import and clean our cities. Thus, we must work towards making EVs a reality. But, to say that we will entirely move to electric for 3-wheelers by 2023 may be difficult. If three-wheelers give more income to the operator, then they will buy them on their own and shift will happen. That level has been reached by three-wheelers and hence they will take off. I would be happy to see if the goal of reaching 100% electric is achieved for three-wheelers by 2023 and two-wheelers by 2025. But I think it is too early to put a date. The industry is a bit scared as they believe reaching zero to 100 in four years is hard.

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