Auto majors need to wake up to the reality that is electric vehicles, otherwise they run the risk of going the Nokia way in the mobile phone industry
Recent numbers suggest that the trend of car sales declining in big cities in India even as they continue to grow in rural markets is now extending into the festival season, traditionally the period when car makers usually make merry. Through the festive period ending with Diwali in early November, retail sales of passenger vehicles fell a whopping 14%.
Analysts attribute this decline to the growing popularity of app-based rides and rapidly improving mass transit systems in the major metros, besides existing dampeners like terrible traffic conditions and fewer parking options. A rise in financing and insurance costs along with the steep fuel price hike over the last six months, have also been contributory factors.
Talk to car makers and they feel some of these factors could well change and with global oil prices dropping again there may be some reason for them to feel optimistic.
But what if the decline in sales of cars based on conventional fuels is here to stay, reflecting a radical change in consumer attitudes towards mobility? There is a growing awareness among millennials in particular that the deadly pollution levels in all our major metros against a backdrop of crippling traffic, is a consequence of the unbridled use of private cars.
In line with the choices being made by younger people in most developed markets, millennials in India too might well be shunning car ownership opting either for ride-sharing or at least for cleaner vehicles.
Indeed the move towards zero-emission cars, slow as it seems today, may be inexorable. Electric vehicles are still a minuscule segment owing to teething problems—like lack of charging infrastructure and high prices of lithium ion batteries that power them.
According to data put out by the Society of Manufacturers of Electric Vehicles, the number of electric cars sold in the country fell to 1,200 units in 2017-18 from 2,000 units in 2016-17. While that is discouraging and a consequence of some truly muddled thinking by the government, the issues that have been inhibiting growth of electric vehicles can be resolved with some resolve from the government and some enterprise by a few brave entrepreneurs.
For the former, look no further than the Chinese model. According to China Association of Automobile Manufacturers data, new electric vehicle sales reached 595,000 units in the first eight months of 2018, up from 318,000 units in the same period in 2017 and 250,000 units in the same period in 2016. That’s a growth rate of 27% with four months still to go for the year on top of the 87% growth in the previous year. The Chinese government has exempted electric vehicles from purchase taxes and also initiated an aggressive consumer subsidy program, which is renewed every few years, with the subsidy itself declining even as the eligibility threshold is raised.
State support apart, the US where the share of plug-in electric car sales is now more than 2%, the highest ever and this at a time when overall car sales are declining, is an example of entrepreneurship and innovation pushing the trend.
For cars based on conventional fuels, the writing is on the wall, though India’s market leader Maruti Suzuki India Ltd doesn’t seem particularly perturbed. In any case, it is difficult for a an auto company with a 53% share of the market to turn its back on its large existing base. Maruti has announced ambitious plans for the EV space but so far, barring the one hybrid model, it has nothing on the ground.
The examples of erstwhile heavyweights like Nokia and Kodak show that it is the existing market leaders that face the biggest challenge when a sector goes through a large-scale disruption following technological change.
Nokia read the cellphone revolution right and went on to dominate the space. But that very dominance led to its missing the move to smartphones even though it had successfully developed one as far back as 1996.
Electric vehicles could do to mobility what the smartphones did to telecom. Already in the US, the early pace setters are not traditional car companies like General Motors Co. but upstarts like Tesla Inc. The lights are blinking for India’s car giants.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage.The Corporate Outsider will look at current issues and trends in the corporate sector every week.