Automobiles Channel Checks: PVs and Tractors To See Muted Sales

Emkay Global Financial Services spoke to dealers from various segments like 2-Wheelers, PVs, Tractors and CVs to gauge volume expectations for the festive season. The key highlights of the channel checks are:

2-Wheelers' demand to improve in festive period

Dealers expect double-digit growth in the urban areas, supported by a pickup in business activity and the re-opening of educational institutions. In comparison, demand is expected to be subdued in rural areas as customer sentiments are yet to normalize after the COVID second wave. Dealers have built inventory levels of up to two months in anticipation of a healthy festive season.

Among OEMs, Honda, Suzuki, Bajaj Auto and TVS Motors are expected to do better than Hero MotoCorp during the festive period, owing to higher exposure to urban markets. Royal Enfield is expected to be severely hit by semiconductor shortages.

Growing acceptance of Electric 2-Wheelers

Enquiries and bookings are increasing for Electric 2-Wheelers, considering central/state government incentives and increasing petrol prices. In addition, driving range anxiety is limited as general usage of 2-Wheelers is below 50 kms per day, which is much below the range being offered in most E-2Wheelers. Few Ampere models have portable batteries, which makes it easier to charge the batteries.

Dealers believe that Ola Electric's strategy of not having a sales and service network is unlikely to succeed. Customers generally prefer to visit showrooms before making purchase decisions and a well-developed service/spares network is helpful in addressing product issues.

Adequate financing available

Although financiers are selective, they have become more forthcoming in recent months. Finance availability is also improving for E-2Ws, though it is still difficult in comparison to ICEs.

Chip shortages to impact festive retail sales for Passenger Vehicles: Order bookings are extremely strong, with a waiting period of up to six months for top selling models. CNG vehicle demand is robust due to the lower cost of running in comparison to petrol/diesel vehicles. Dealers expect a subdued festive season, owing to supply constraints. Dealer inventory levels are low at 1-2 weeks. Assuming supply issues persist, dealers may run out of stock by Oct'21-end. Among OEMs, Tata Motors is doing well, while Maruti Suzuki's market share is under pressure owing to severe production constraints and the absence of new products.

Order bookings are extremely strong, with a waiting period of up to six months for models such as Ertiga, XL6, Swift, Dzire and Brezza. Dealers are not getting adequate stock to meet the pending order book. Hyundai dealer hopes for a flat festive period, while a Maruti Suzuki dealer expects a double-digit decline.

Tractors

Festive volumes are likely to decline due to a high base and moderation in customer sentiments. Dealers expect a double-digit fall in volumes. Discounts are being provided by both OEMs and dealers. Among OEMs, John Deere is expected to do better than Mahindra & Mahindra and Escorts. Dealer inventory levels are high at 1.5-2 months.

MHCVs Volume improvement continues: Channel checks indicate that demand has been supported by 1) an increase in infra spending, 2) strong demand for I&LCVs from segments such as E-commerce, Agri, FMCG, etc, 3) improving freight availability, which is supporting utilization levels for transporters, and 4) some improvement in replacement demand. Demand for CNG trucks has been outpacing supply as there is a shift toward CNG vehicles due to the advantage of fuel costs over diesel and improvement in CNG distribution reach. Tata Motors and Eicher Motors have been gaining share due to their strong presence in I&LCVs and CNG vehicles.

Discounts are being provided by both OEMs and dealers. However, volumes are still below last year levels. There are no major announcements on state government subsidies. Subsidy support is lower than last year.

Scrappage policy could be a positive catalyst

The dealer is putting up Scrappage yard to benefit from the potential opportunity. The policy's success will depend on how strictly the mandatory fitness tests are implemented. These tests would commence from April 2023 onward. Assuming a stringent implementation of fitness tests on older vehicles, it could support the replacement cycle.