Rajesh Khanna, Director, RACE Innovations (P) Ltd. shares insights about the current status of the Indian commercial vehicle industry and presents his view about the excitement surrounding the introduction of electric and hybrid vehicles
Far-reaching adoption of alternate fuel-powered vehicles is one of the many solutions to help India align to the global carbon neutral policy. Inflated fuel cost, immense volatility ahead prospects of alternative fuel vehicles (AFV) seem attractive as ever, but lack of sufficient infrastructure for these vehicles remains a key barrier. Given this gap, the private sector will need to step up to make greater investments in infrastructure and creation of an ecosystem by policymakers for sustenance. This will help companies transition their commercial fleet as well as help transporters adapt to AFV, including the EVs and mild hybrids, faster.
The Indian CV industry been resuscitated and rechristened from challenges arising due to revised axle load norms, vehicle capacity enhancement (revision of gross vehicle weights), BS VI transitions, pandemic-related crisis, Russia-Ukraine conflict and liquidity crunch, further reflecting sales of 0.8 million units in FY 2021 compared to 0.6 million in the previous year, including exports. Despite punitive impacts on supply chains and manufacturing across the globe, manufacturers have been able to achieve good production highs in the last Q1 (April – June 2022). It’s been estimated for FY 2022 to end with around 0.92 million units, including exports – an increment of 13-15% compared to FY 2021.
Digitisation, connectivity, automated driving and alternative powertrains are the real drivers of innovation in commercial vehicles. Manufacturers have not only aimed for cleaner vehicles but have also redesigned their vehicles while ramping up the entire product line and making the outlook for the industry presumably very positive. Logistics and fleet operators had been dawdling their purchase decision for reasons owing to mystified vehicle delivery schedules and instability in input costs. However, we see stability emerging slowly with more purchases expected in the second half of 2022-23.
The logistics and transportation sector steadied post the onset of the pandemic, courtesy the rising retail, infrastructure and manufacturing ecosystem in the country. We witnessed a lot of consolidation or amalgamation in the logistics and fleet operations with focus on improving efficiency and we saw great investments made in infrastructure development and the enhancement of operational efficiency in the industry.
With modern technology-driven integrated logistics platforms with international backing demanding OEMs to offer higher productive vehicles with better operational cost, the fear of higher capital cost is slowly getting out of the minds of the transport community. Contracts are being worked at long term models and leasing possibilities help them to focus only on their core expertise rather than funding or maintenance of the assets. states RACE Innovations based on their recent studies.
OEMs have witnessed improvement in their supply chain capabilities, resulting in better production outputs. Stability in raw material input costs and timelines are aiding OEMs to improvise their production capabilities, clearing the old pent-up orders of the last financial year bookings. In the bus sector, the electrification drive of intracity buses have aided bus operator services in terms of the operational expansion model with new players entering the arena to serve millions of people that use them every single day. Ridership levels have peaked up to levels of the pre-pandemic scenario, forcing operators to invest in long-hold replacements, purchases of buses for schools, college and staff and intercity applications. Phenomenal growth in light commercial bus (LCB) sales numbers have been witnessed in Q1 (April-June) FY22 and medium and heavy-duty buses are gaining traction following the LCB growth in the following quarters of this FY22.
Opex Model Sustenance
Modernisation of state transport undertakings (STU) fleets, e-mobility by way of the opex model (payment for services, not involved in capital purchases) is a prodigious initiative, followed up with subsidies to achieve the desired results. Opex or leasing models have been quite successful in the developed western countries whereas in the Indian markets poor contract enforceability, clarity on service levels, performance and terms of engagements pose challenges for new entrants who had acquired market share from the traditional bus manufacturers who were holding the forts strongly.
Traditional manufacturers have also been investing heavily, formulating ventures in similar lines to compete and thwart the new entrants. Serviceability, ensuring availability of vehicles in reliable conditions of use beyond the honeymoon period of 3-4 years remains a key challenge in place, state European manufacturers who had worked on the capex model earlier and couldn’t sustain and had to quit. Similarly, opex models in municipality applications also ran into similar issues. Current contracts have been designed for a period of more than 10 years and heavy investments are factored with returns seen after the seventh year of operations backed up subsidy returns.
Hence, it is of paramount importance to evolve an ecosystem and support systems to help the new entrants sustain and make the opex model successful, thus ensuring that the stakeholders are benefitted and encouraged. In the truck and trailer sector we see phenomenal growth related to infrastructure, mining and e-commerce sectors. The recent regulatory changes have been reflected in increased sale of CNG-powered vehicles. Further, the government is backing the initiative by opening more numbers of CNG retail outlets to fuel the vehicles.
As many as 1,500 outlets have been opened in FY 2021, the highest in any single year. Other alternative fuels and techniques are being deliberated upon to suit Indian situations. The C-OEMs (component OEMs), ancillary and accessory manufacturers have reached their pre-pandemic revenues, backed by good performance in after-sales and export numbers. Exports contributed 33% of their total revenue, whereas the aftermarket contributed 18% of their total revenue on account of over-utilisation in old vehicles due for replacements (deferred purchase decisions).
Studies also reveal moderation witnessed in supply-side issues, availability of semiconductors, stability in input raw material costs and availability of export and import containers. C-OEMs prepared themselves well in the last two years of the lockdown period to meet regulatory compliance while governmental initiatives aided fast recovery and consolidation of players. Dealerships and distribution channels have been voyaging with advance bookings – the long waiting periods giving them a ‘feel good’ factor of sellers’ market situation. In this process, some of the dealers have been able to encash higher profit margins based on advance inventory planning.
Pricing Power and Inelasticity in Demand
Going forward, we see digitalisation, technological advancement and artificial intelligence likely to create an affable purchasing condition for customers. RACE Innovations predicts the CV distribution network to change over from an intensive distribution strategy to selective distribution strategy along with further creation of new-age ‘phygital’ (a hybrid outlet with technological outfits and artificial–virtual-enabled systems to provide an ecosystem to feel the manufacturing process, customisation to the maximum levels, digitally connected aftersales experience and preventive maintenance support giving an advance level purchase experience – a combination of physical store and digital exposure for buyers) retail outlets. Also, we expect this network to build capacity to handle all statutory and regulatory formalities as well as compliances related to vehicle sales, fitness certifications during their lifetime and also the scrapping of vehicles after the desired life period completion.
Alternate Fuel Adoption in CV
Alternative fuel vehicles (AFVs) accounted for less than 2% of CV sales in FY 2021 with limited growth expected up to 5-7% of total CV sales by FY 2025-26, further possibly seeking to get aligned with the stupendous target of 30% of the CV sales by 2030 as envisaged by the current policymakers. It is expected that the United Nations Climate Change Conference (better known as COP26) and the soaring fuel costs will play a pivotal role in quicker adoption of AFVs. India’s CNG program looks quite promising with 20-25% savings on fuel cost for end-users, abetting exponential addition of fuel stations across the country.
Concerns have been looming around shortages and allocations for commercial usages, direct hydrogen blended CNG (HCNG) and maximum blending of up to 18% levels. HCNG can use the same retail outlets of CNG for distribution and retailing. Other models of AFV constituting ethanol-biofuel blends and hydrogen fuel cell technology are currently under trials for commercialisation. Pureplay electric and hybrid AFV models have experienced certain degree of success in intracity buses under the FAME scheme and currently around 0.8% of the total CV sales constitute EV vehicles. Going forward, AFV success depends on cost saving for the end-users. It is difficult to sustain on subsidies in the longer run.
Battery Technologies
In-house capacities and integrated charging ecosystem are the grey areas in the growth story of the Indian EV markets. There have been tremendous efforts underway to improvise charging stations for the EV vehicles, but of course fast charging is the need of the hour. Unutilised asset (non-usage of EV during charging time) in guise of charging looks economically aggressive and non-acceptable. The Indian EV industry has been dwelling upon Lithium-ion technologies and further subsidies directed to set up Li-ion battery manufacturing in India. But those from the developed economy have come up with new technologies in battery manufacturing aiding faster charging. Thus, our manufacturing initiatives and policymakers should refocus their strategies in bringing new-age battery technologies rather than the archaic Li-ion battery technology.
Conclusion
To sum up, the Indian CV industry climate is usurped to adopt alternative fuelled vehicles and generate demand for such products. Each of the alternative fuels has its own uniqueness, challenges to mine, distribute and utilise them in vehicles. Of all the lot, the excitement revolves around electric and hybrids, but the challenge is in terms of the charging timeframe and coverage. From the viewpoint of the end-users, it’s been felt that EV vehicles are more suited for passenger vehicles and short-haul commercial trucks. The natural gas variant blends of CNG, HCNG or LNG will be suited in the intermittent stage but in the long term the solution would lie in generating, storing and distributing hydrogen to power heavy-haul trucks to work on hydrogen fuel cells.