Sales of medium and heavy commercial vehicles (MHCV) will not pick up before 2021 as demand remains depressed due to weak freight volumes, new axle load norms and coming BS-VI emission rules, Daimler India Commercial Vehicles Pvt. Ltd said.
“We expect the MHCV segment to see a fall of 25-30% this year and 10-15% next year mainly on the BS-VI norms. The growth story in MHCVs will return only in 2021 and not before that," Satyakam Arya, managing director (MD) and chief executive officer (CEO) of the Chennai-based company said in an interview.
Arya had earlier said that if the economy continued to grow at 7%, it would have taken more than two years to consume the excess capacity generated by the new axle load norms, which has impacted the 16 tonne and above truck segments.
“However, we are growing at 5%, which means that it will take even longer to completely absorb the additional freight carrying capacity. I talk to fleet owners and most of them have 40-60% idle capacity at the moment. If that is the situation, I don’t expect them to be even slightly motivated to purchase new trucks, especially because it is not easy to get the funding at this point in time," said Arya.
DICV had four no-production days in August. It is operating only one shift instead of two shifts a day.
“We have seen in other parts of the world that whenever such emission norms are implemented, there’s up to 10% decline in a strong market. We are not a strong market right now. So, we expect 10-15% drop next year. However, after that is settled in, the economy has a lot of potential to grow. Growth would come back in 2021 and it could be double-digit growth," said Arya.
Daimler AG’s commercial vehicle (CV) arm has strategically moved to make India a key export hub for BS-VI trucks. This clearly is seen as an effort to reduce its dependency on the domestic demand for the MHCVs alongside enabling DICV to boost capacity utilization at its ₹5,500 crore Chennai manufacturing unit.
DICV, Daimler AG’s 100% subsidiary, has invested about ₹500 crore to set up new testing facilities and has developed over 1000 new critical parts (including engine and transmission components) to achieve 80% localization to manufacture BS-VI-compliant CVs in India. “Our internal target is to achieve over 90% localization. We will do this in the next few months," Arya said.
While a major portion of DICV’s 9-55 tonne portfolio is BS-VI ready, the company said it will wait for the oil marketing companies to roll out the BS-VI grade diesel across India before commercially launching the vehicles in the domestic market.
“We will begin exporting ‘Made in India’ BS-VI trucks by 2021-22. The transition to BS-VI compliance will help us export fully built trucks and buses, engines and other critical parts to countries with similar emission norms such as Mexico, Chile and Brazil," he added.