Auto sector will emerge stronger from the churn3 min read . Updated: 05 Feb 2020, 08:11 AM IST
The digital generation is revolutionizing the way we think of automobiles
Change may be the only constant, but the pace with which it takes place is not. The automotive industry is seeing a spectrum of disruptions, as we move towards a cleaner, safer and convenient transport ecosystem. There are primarily three factors causing this disruption: The shift to stringent emissions norms, the transition to electrification, and potentially changing consumer preferences with shared mobility and a connected ecosystem.
The inevitability of change, and the associated risks and opportunities, have implications for original equipment manufacturers (OEMs) in terms of strategic planning and consolidating their efforts. It is imperative to analyse and understand the possible inflexion points of regulatory peaks, mass change in consumer preferences or lower costs of technology development, and how different scenarios could impact businesses.
India should pride itself for meeting the BS-VI challenge in record time of just three years, undoubtedly among the fastest transitions globally. The transition also provides an opportunity for increased value-add in the Indian manufacturing ecosystem. With India meeting global benchmarks on technology and emission, it will also help the Indian auto industry compete better globally and access new markets. Most importantly, the collective effort of the auto industry to meet the BS-VI deadlines should provide the much-needed fillip to the image of the auto industry.
However, this transition has a cost—BS-VI vehicles will be more expensive. It will be vital for policymakers to cushion the impact on the new vehicle buyer. At the same time, it is encouraging to see customers want BS-VI vehicles, indicating an ‘evolving’ base.
Driven by the need for clean air, rapid evolution in battery technology and falling costs, there has been a push towards electrification. The EV industry offers new opportunities as a sunrise sector, with the potential to drive economic growth and employment. With a focused policy on manufacturing, as well as, the potential availability of a skilled workforce, India can be competitive in new product lines, including high-efficiency motors, permanent magnets, cell and battery components, and power electronics.
While we balance environmental considerations, market dynamics and regulations, the challenge lies in innovating and creating commercially viable business cases for EV adoption at the bottom of the pyramid. India’s EV revolution can take off with electric three-wheelers, a product whose unit economics make commercial sense even today, when compared to its ICE alternatives, for first/last mile applications. With Fame-II already making clear the intent of electrifying public transport, we also need to handhold mobility businesses towards inducting electric cars into their fleet. This will also provide clarity to OEMs, resulting in greater investment in R&D as well as scale, thus, further pushing cost trajectories downwards. Even if we look at a conservative 15% of all passenger vehicles, two and three-wheelers turning electric by 2030, with the auto industry growing at a modest 7% CAGR over the next few years, we are still talking of 6 million units by 2030.
The narrative around electrification and low-carbon mobility has also been premised with a changing commuter preference, that of shared and connected mobility. This new digital generation is revolutionizing the way we traditionally think of automobiles—for most Indians, ownership of a car is the second-biggest investment after a house, but now with shared mobility, there is deliberation on ownership-versus-shared paradigms. It should be noted that a shared transport economy is not new; rural and semi-urban areas have pioneered shared or fractional ownership long before the digital mobility players arrived. Newer forms of acquiring a car, like subscription and leasing, are changing the way customers interact with the auto industry. The churn that the auto industry is going through, presents an opportunity for the industry to regroup, rethink and come out stronger.
Pawan Goenka is the managing director of Mahindra & Mahindra