India's push for electric vehicles is haemorrhaging car makers
Jul 29, 2019, 15:16 IST
- Shares of some Indian automobile companies have lost over 40% of their value since the start of the year.
- Car makers have been the worst hit by the slump in demand triggered by slump in the Indian economy that has hit consumption.
- The Narendra Modi government's rush to get people to move to electric cars is making business worse for makers of traditional cars that run on fossil fuels like petrol and diesel.
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Indian car makers are in dire straits. Sales have been falling for eight straight months now with no respite in sight. A weaker economy, rising unemployment and pessimism among consumers have led to a steady fall in demand for discretionary products like cars.The crisis has cost investors too. Share prices of car makers, which include some of the marquee names of corporate India, have lost a lot value-- some of them over 40% -- since the start of 2019. And now, there is more bad news that has taken the wind out of auto stocks like Ashok Leyland, Maruti Suzuki, Tata Motors, and M&M today.
| Stock | July 29 | Last 1 Year |
| Ashok Leyland | -3.44% | -35.95% |
| Maruti Suzuki | -3.75% | -40.48% |
| Tata Motors | -5% | -45.94% |
| M&M | -1.60% | -39.23% |
The government wants more Indians to adopt electric vehicles, and dump their old cars that run on fossil fuels like petrol and diesel. Electric cars may be better for environment but there are many concerns including the feasibility for customers and the availability of infrastructure to name a few.
The government has cut the goods and services tax on electric cars to less than half and offered tax rebates on interest paid loans taken to buy electric cars, aside from setting aside a ₹100 billion earlier this year to incentivise electric car manufacturing in India.
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While the EV segment is still facing challenges of limited product availability, charging infrastructure constraints and product viability issues, the government is stepping up its efforts to kick-start its adoption, and appears willing to raise the regulatory burden on conventional vehicles to incentivise the former.
More bad news
The Ministry of Road Transport and Highways has come up with a draft policy to promote old car owners to scrap their vehicles in exchange for free registration for a new car. However, for those who can't avail the incentive, the registration fee will rise up to 40 times.
| Proposed Fees | New Registration | Hike | Renewal | Hike |
| Two-wheeler | ₹1,000 | 20x | ₹2,000 | 40x |
| Three-wheeler | ₹5,000 | 17x | ₹10,000 | 33x |
| Private car | ₹5,000 | 8x | ₹15,000 | 25x |
| Taxi | ₹10,000 | 10x | ₹20,000 | 20x |
| Medium and heavy vehicles | ₹20,000 | 13x | ₹40,000 | 26x |
"The government also intends to increase the cost of ownership of old vehicles by raising charges for their registration renewal. We, however, believe the above policy measures will be unable to trigger much replacement demand and hence are unlikely to provide much of a boost to auto demand. First, the number of vehicles that are older than 15 years and still in active use is very limited. The owners of such vehicles will usually have limited financial capability to buy new or other vehicles in the secondary market (even if incentives are transferrable), and hence are less likely to go for this voluntary scrappage scheme," CLSA explained.
Car makers have had to offer deep discounts to bring people into showrooms. These discounts are far more than the incentive available on registration renewals and yet, they have failed to revive demand for cars. The policy squeeze will be an added burden on the companies.
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