CV Sales face unexpected speed bump in August 2021. The semi conductor shortage has had a significant impact on SCV sales which in turn has hit overall sales of CVs significantly. The SCV segment de-grew by (7%) vs August last year and (18%) vs July 2021. All other segments continued to be on a growth path in comparison to both LY and Last month.
CV Sales by segment
CV Sales by manufacturer
Tata Motors, VE Commercial Vehicles and Ashok Leyland posted strong growth vs. August ’20 and July ’21. However, Maruti posted a drop vs. July ’21 and Mahindra posted a significant de-growth. The shortage of semi conductors has significantly impacted the supply of vehicles which has in turn significantly impacted sales. Mahindra anticipates the shortage to impact sales for a few more months and has announced plant shutdowns in anticipation in September already. We expect this to impact the SCV segment sales for the next few months.
CV Sales by manufacturer
SCV sales
The SCV segment was impacted most significantly due to the drop in sales for Mahindra. While other manufacturers posted strong growth between 13% and 31%, the sales drop at Mahindra impacted SCV sales causing a de-growth of (7%). The segment was up only 62% YTD this year, the lowest across all segments with CV.
SCV Sales August 2021
I&LCV Sales
The I&LCV segment posted an impressive growth of over 100% vs. August 2020. Mahindra posted a growth of 153% followed by Tata Motors at 130% and VECV at 74%. The I&LCV segment was also up an impressive 170% YTD.
I&LCV Sales August 2021
M&HCV sales
The M&HCV segment also posted an impressive growth of over 100% in August 2021. All manufacturers posted impressive growth led by Tata Motors and VECV with growth of 113% followed by Ashok Leyland at 80%. This segment has been the best performer this year with a growth of over 250% YTD.
M&HCV Sales August 2021
Bus sales
The bus segment also posted a nominal growth of 21% against an already low base. This segment continues to struggle with schools being shut, route permit operations being limited and staff operations only operating partially. However, this segment is also up 121% year to date.
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CV Industry sales figures for Q1 FY22 are shown in this post. A detailed summary of Q1 FY22 volumes in the CV industry by manufacturer and segment is added here. We summarise volumes on SCV, I&LCV, M&HCV and Bus segments below.
Q1 CV Sales FY22
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Leading indicators including truck utilisation, freight rates and the sales mix across segments indicate that recovery is around the corner for truck sales. Improving collection efficiency of CV financiers and the attractiveness of CNG trucks will help propel the industry to a steady growth starting Q2 FY22.
Operators optimistic about an early recovery by September 2021
A recent survey of truck owners across the country by Leaptrucks and Credit Suisse for knowledge partner ET Auto has uncovered that truck owners are facing the brunt of the lockdown. A combination of lower demand, a drop in truck utilisation, soft freight rates and a high impact on profitability has affected their operations.
Trucks standing idle during Lockdown 2.0
The survey covered the following sections:
Introduction and background of the analysis
States covered
Segments covered
Fleet sizes covered
Impact of Lockdown 2.0 on Market demand
Percentage drop in demand due to lockdown
Factors affecting demand
Impact on Operator profitability
Drop in utilisation of trucks
Softening freight rates
Drop in profitability
EMI Repayment challenges
Loan products accessed by operators
Access to top up loans
Percentage operators missing 2 or more EMIs
Conclusions
Acknowledgements
The link to the full article published on ET Auto is shown at the end of this page.
Bonus content: Regulatory Support expected
Operators across the country are also expecting support to ensure that they are able to recover from the crisis quickly and effectively. Over 74% of operators interviewed indicated that Lower fuel prices would be critical for their survival. Most operators interviewed also indicated that it would be challenging for freight rates to match current fuel prices since end customers were reluctant in raising freight rates.
Over 45% of operators also anticipated support in the form of an EMI moratorium. Considering that around 30% of operators would miss 2 EMIs, this support would provide them critical support to recover from Lockdown 2.0 effectively and efficiently. Government intervention in this regard would also support Banks and NBFCs in lowering possible NPAs.
Regulatory support expected by operators
Acknowledgements
We wish to thank our Survey partners Credit Suisse, knowledge partner ET Auto. A special thanks to our CV dealer partners including Mr. C S Vigneshwar of Anaamalais Agencies, Mr. Mehul Dholakia of APCO Motors, Mr. Irfan of ATC Motors, Mr. Deepak Patel and Mr. Arvind Patel at Patel Motors and Mr. P.K.Ananthanarayanan at PSN Group for participating and supporting us in this detailed study. All of their teams worked closely with us through the detailed interviews. This survey would not be possible most importantly without the support and patience of Truck operators from across the country who took time and effort to respond to our survey.
CV industry performance 2020-21. Courtesy Leaptrucks
We bring to you the CV industry in 4 charts. These charts summarise the industry performance for 2020-21. While the CV sales did not live up to our lofty expectations in 2020-21, we witnessed a recovery in Q3 and Q4 2020-21. We also look at the major factors that will determine the recovery of the segment in 2021-22 and influence the outlook for 2021-22.
Chart 1 – CV sales in the past 12 years
The overall sales of CVs fell to the lowest level in the past 11 years. The industry, had already crashed in 2019-20 from an all-time high the previous year. The industry clocked an annual sale of 5.69 Lakh units, down 20% to the previous year. Annual sales was only slightly higher than the sales in 2009-10.
CV sales for last 12 years (Source: Siamdata)
Chart 2 – segment wise performance*
While the overall industry fell 20%, the SCV segment performed best. It de-grew by (12%) followed by the I&LCV segment at (17%) and the M&HCV segment at (21%). The Bus segment had the steepest fall of (78%) as Covid impacted passenger transportation across India.
Segmentwise sales CV 2020-21
Chart 3 – Contribution by segment*
The SCV segment grew to be an even bigger portion of the overall CV business in 2020-21. The SCV segment made up 66% of the overall CV business vs. 60% last year. The Bus segment shrunk from 9% last year to only 2% this year. The M&HCV segment grew slightly while the I&LCV segment contribution remained unchanged.
CV contribution by segment 2019-20 vs 2020-21
Chart 4 – Monthly sales and momentum by segment*
The SCV segment recovered first. However, it struggled in Jan ’21 & Feb ’21 due to supply issues related to semi-conductor availability before recovering in March ’21. The I&LCV segment and the M&HCV segment both performed consistently above last year from Sep ’20 onwards and posted their best sales in the month of Mar ’21. While the Passenger segment struggled all year, it recovered slightly in Mar ’21 to finish the year on a positive note. In summary, all segments finished the year on a strong note in March.
Monthly sales by segment August ’20 to March ’21
* Data summarised from published sales figures of Tata Motors, Mahindra, Ashok Leyland, VE Commercial Vehicles & Maruti Suzuki who make up 97% of the CV industry. CV industry in 4 charts.
Major Economic indicators
Before we go into what we can expect from the CV industry, we will briefly summarise the outlook for the Indian Economy and the CV industry by experts:
IMF estimates for India GDP at 12.5%: The IMF has projected a growth of 12.5% in GDP. While we de-grew last year, we believe that the Indian economy will come back stronger this year. A strong growth in GDP bodes well for a strong performance in the CV industry. IMF projections
CRISIL CV growth estimatesat 35%: CRISIL has estimated that the CV industry will grow at a healthy rate of 34 – 36% for the year 2021-22. This was based on the continued focus on Infrastructure and Roads by the Government and the improved demand from Q3 2020-21 which should provide a strong base for growth in 2021-22. Read article here.
Infrastructure investmentsgrowing at 35%: The Indian government has planned to invest 35% more in infrastructure vs. FY 2020-21 in the budget announced in February. This bodes well for the CV industry, especially the M&HCV segment. The government is also pushing State Government Transport undertakings to move to PPP model to efficiently operate buses across India. The scrapping policy may also have a minor positive impact on the prospects of the CV industry this year.
Factors affecting CV performance in 2021-22
However, as Covid cases continue to rise, the outlook for 2021-22 will remain dynamic and unpredictable. While the CV industry sales in March were the best for the last financial year, a bevy of factors will determine the performance of the industry in 2021-22:
Containing Covid: Covid cases continue to rise across India in the second wave. The effectiveness of our Covid containment strategy will directly impact the performance of the CV sector. This will also impact the confidence level of drivers who travel to high-risk locations and keep goods moving.
State level restrictions: As more states impose restrictions on out of state visitors, confusion gets created for interstate goods movement. Since a large number of CVs operate across multiple states, this will in turn impact their viability.
Fuel prices: While demand has continued to grow in Q3 and Q4 2020-21, operators continue to be challenged by high fuel prices. The rise in freight rates have always lagged the rise in Diesel prices. This also makes viability of BS6 trucks which are 20 to 30% more expensive that BS4 variants from 1 year ago more challenging and in turn impacts new truck sales.
Public transport: The bus segment was down 78% last year. With cases rising and people continuing to lean towards private transportation or staying at home, public transportation (buses, staff buses, school buses, share autorickshaws) will not be operational without widespread vaccination.
New vehicle supplies: OEMs continue to face supply shortages of critical components using semi-conductors. This has impacted the SCV segment the most and is expected to impact supplies until Q2 2021-22. OEMs will also be impacted by shortened operations in case they have outbreaks of the virus in their plants.
Rising costs: OEMs are also battling rising costs of commodities. Steel prices have increased by around 50% from a year ago. OEMs anticipate further price increases in the coming quarters as demand outstrips supply. Rising cost makes viability of CVs a major issue until freight rates rise to match higher costs.
The prospects for both the Indian Economy and the CV industry are closely linked to the timely containment of Covid. Accelerated vaccination of the public, maintaining social distancing and wearing masks at all times will help us control the spread of the virus. While the first point is in the hands of the Government, the second and third are in the hands of the public. We are confident that India will rise to the challenge and come beat the virus this year and make the Indian Tiger roar again. We are also optimistic about the turnaround of the CV industry in 2021-22 despite the challenging circumstances this year.
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The runaway success of the Mahindra Thar and shortage of semiconductors has increased waiting times by up to 9 months! (Photo courtesy www.Mahindra.com)
In the past few weeks, you would have experienced at least one conversation that veers towards non availability of your friend’s favourite car or truck. And somewhere in the conversation, semiconductors would have made an appearance. This article de-mystifies the reasons for the shortage and what auto manufacturers are doing about it.
The year 2020 has altered our way of thinking. We faced a global onslaught from a tiny one celled Coronavirus which brought the world to its knees. More than a year on, vaccines in mass production, we are still far from normalcy.
Over the past few months, many of the fastest moving models of cars, trucks and buses are in short supply like the newly launched Mahindra Thar shown above. OEMs are citing availability of semiconductors as the primary reason for the shortage (Mahindra Thar shortage article). In this article, we break down how we got here.
Why do we need semiconductors?
Semi conductors regulate the functioning of products as simple as hair dryers and Refrigerators. They help us change the temperature in an air conditioner or the channels in a Television using a remote. They also power more complex devices like Mobile phones, Data Servers, Computers and Automobiles. Most of the devices we use everyday are powered by semiconductors.
Semi conductors have been playing a critical role in automobiles in the recent past. They power the brain of the cars, buses or trucks, the Electronic Control Unit (ECU). The ECU along with sophisticated sensors control the Powertrain (including the Engine, Transmission, Differential & Axles), the Door systems (including power locks and windows), the Infotainment systems, GPS / Telematics systems, the Exhaust After-Treatment Systems (EATS) or catalytic convertors (to control emissions) and Electrical systems. Electric vehicles (EVs) and Autonomous vehicles (AVs) rely even more on semiconductors which additionally monitor sophisticated sensors, complex software and charging systems.
Design and manufacturing of semiconductors
Samsung, NVIDIA, Intel, Qualcomm, AMD and Broadcom, among others, design and sell semiconductors. However, the manufacturing of these devices is largely outsourced to a select few companies. Reports suggest that Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung control over 70% of the global supply.
The semiconductor manufacturing industry also has a limited number of players due to the large capital investment required to put up new state of the art plants. Estimates from TSMC and Samsung for installing new state of the art plants range between $17B to $20B. This limits the number of new entrants despite an attractive market being available. This also limits additional investment by exiting players without order guarantees or fully utilising their existing capacity.
Manufacturing plants are located in a handful of countries including Taiwan, South Korea, Japan, US and China among others. The shortage has also made countries look at semiconductors as a mission critical industry similar to defence. China is investing significantly to begin manufacturing locally. The US is also working with major manufacturers to increase production in the US.
Which industries use semiconductors?
As we had discussed, most industries consume semiconductors. Mobile phones, TVs, computers, servers and communication devices are major users along with auto industry. We looked at an analysis done by Mckinsey which ranked consumption by industry in April 2020 (See chart 1 below). The order of consumption by industry is as follows:
Computers & Servers
Wireless communication devices (Routers, Telecommunication devices etc.)
Industrial Applications
Automotive (28% marketshare in 2019 at $41B)
Consumer Electronics (Mobile phones, tablets, video game consoles etc.)
Wired communication devices
While the Auto industry currently ranks number 4 in consumption, we anticipate that higher penetration of high end electronics and the emergence of electric and autonomous vehicles will make the Automotive industry move up in the ranking over the next few years.
Coronavirus and its impact on Semiconductor supplies
To understand the shortage of semiconductors and its impact on supplies, we look at 3 periods of time since January 2020. The shortage of semiconductors today were triggered by the impact on the Automotive industry with the onset of the pandemic. This was amplified in the transition phase and finally exacerbated by the new normal. We review these 3 timeframes in more detail below.
1. Onset of the pandemic – January / April 2020
As the pandemic raged across the world, governments reacted with varying levels of restrictions. Some like the US were liberal in keeping the schools open and minimising restrictions while others like India clamped down and ordered a total lockdown. By early April, most economists and industry experts anticipated a significant negative impact on Global GDP (-3% estimated by the IMF in April, 2020 (See the IMF report here). The IMF also anticipated the slowdown to be worse than the 2009-10 financial crisis.
Consequently, most experts across industries revised their product forecasts. This in turn impacted the forecasts for orders for semiconductors negatively. The chart below shows the forecast from Mckinsey in April 2020. They revised demand for the industry down by -10% against 2019 sales (See the Mckinsey report here). The automotive industry was also anticipated to de-grow by around significantly. In view of these forecasts, it also appeared that the industry had more than sufficient capacity to handle the demand for 2020.
Chart 1
2. The transition phase: May to September 2020
The Coronavirus pandemic changed human behaviour. As the world stayed home to work and study, demand for computers, tablets and mobile phones rose. There was a higher demand for streaming services (like Netflix, Amazon Prime Video & Hotstar), video conferencing, online classes and in turn broadband services. This in turn drove up the requirement for Data Servers and Communication equipment. By May, the demand for 4 out of the top 5 industries consuming semiconductors had already peaked.
At the same time, as people Worked from Home (WFM), the need for mobility reduced and in turn reduced the sales of Automobiles negatively. The sales came crashing down across the world in the April /June quarter. OEMs and Industry experts were predicting a drop of over 22% in global automotive sales for the calendar year 2020 (IHS Markit estimate from April 2020). This led many automotive companies to revise their forecasts significantly downwards.
However, semiconductor industry clocked a very healthy growth of 5.8% in May 2020. The capacity given up by the Auto industry was already taken by other industries who were looking for more capacity. The semiconductor industry was already optimistic of an annual growth of 3.3% despite the forecasted drop in the Auto segment (Semiconductor Industry Association (SIA) report, July 2020).
3. The new normal – October to present
The positive feedback surrounding vaccine testing and efficacy helped improve the outlook of a majority of people across the globe. As people adjusted to a combination of WFH and working from the office, demand for all products started gaining positive momentum.
Demand for mobile phones, servers, computers and communication devices continued to remain strong. Demand for automobiles also recovered and was soon back to pre-Covid levels. This unanticipated and earlier than expected recovery caused Auto companies to revise their estimates. However, manufacturers struggled to accommodate this in production. This led to many OEMs losing an opportunity to sell a few more cars, trucks and buses due to non availability of semiconductors.
Despite these challenges, the Automotive industry finished the year with a drop of only (15%) as opposed to a forecasted drop of (22%) (IHS Markit report December 2020).
The semiconductor industry also finished the year with a strong growth of 6.5% beating earlier forecasts of a (10%) drop in April 2020.
Summarising the reasons for the shortage
The Automotive industry recovered later than most other industries from the pandemic. While this caused issues in forecasting accuracy and reaction time, it wasn’t the only reason for the shortage. A comprehensive list of factors that have impacted the industry include:
Slower recovery in the auto industry: The auto industry had a major slump during the Onset of the pandemic and the transition phase. To cut costs and manage inventory, they had to reduce manufacturing capacity by reducing orders at semiconductor plants. However, when the marked recovered, all the available capacity was already taken by other industries which in turn delayed supplies.
Conservative forecasting: Many Automobile companies planned conservatively during the downturn. Since semiconductors were use in Tier 2 and Tier 3 suppliers, they missed out on tracking available capacity at semiconductor plants. As the industry rebounded, it was too late to revise their forecasts since capacity was no longer available. However, a few Auto companies who were monitoring the supply constraints
Single sourcing: To protect Intellectual Property (IP) and control costs, most companies across industries single source all of their semiconductor requirements. This limits the flexibility of moving to a second source in times of crisis. It also takes time to complete the testing and ensure readiness at a new plant in case of emergencies.
Manufacturing lead times providing minimal flexibility: It can take anywhere from 12 to 20 weeks from order to delivery of a semiconductor. The manufacturing process is also very complicated and includes multiple steps on complex manufacturing lines. This high lead time provides limited flexibility to deal with cyclical downturns and faster than anticipated demand growth. The sudden recovery of the global automotive segment in the October to December quarter gave semiconductor manufacturers limited time to ramp production to meet demand.
Plant fires: Fires shut down 2 Japanese semiconductor plants. These included the AKM plant (October 2020) and the Ranesas Naka (March 2021). A large part of production at these plants was supplied to the Auto industry including upto 70% of the supply at the Renesas plant (AKM plant fire and Ranesas Naka in March 2021). This has caused even further disruption in the supply chain as manufacturers move production to other facilities. In fact, the Renesas plant had stepped in to support AKM with supplies when it was also hit by fire.
Margins: Chips used in the consumer electronics and servers have better margins than some chips that are used in the Automotive industry. At a time of capacity constraints, manufacturers would prioritise higher margin products in other industries.
Why are Maruti and Hyundai vehicles not affected?
Based on the information above, we would assume that all Auto manufacturers have been equally affected by the shortage. However, that has not been the case. Globally, GM and Ford had to shut down plants. Closer to home, Ford and Mahindra have had their supply chains severely disrupted. At the same time, Maruti and Hyundai have largely been unaffected. So why have some companies managed the shortage better than others? We summarise the primary reasons below:
Dynamic demand forecasting: Companies that were consistently monitoring macro indicators that were precursors to pickup in demand were able to forecast better. This helped them revise forecasts upwards quicker than competition. The in turn helped improve the supply situation.
Pre-buying: Some companies that were monitoring the semiconductor supply situation closely during the onset of the pandemic were alerted to the potential supply constraints as demand from other industries shot up. They reacted by stocking up on semiconductors and had better reserves when supplies became a constraint.
Monitoring secondary and tertiary suppliers: Most OEMs monitor their primary suppliers closely. Semiconductors are used in secondary or tertiary products that are assembled by their Tier 2 and Tier 3 suppliers. Those that were able to monitor mission critical supplies to these suppliers were able to react to the shortages faster.
Plant Fires: Fires at the Renesas or AKM plants in Japan significantly impacted the supply of Semiconductors at some companies. Some OEMs were plain unlucky if their supplies were coming from these plants since they had been supplying without disruption for many years previously.
Major launches: Companies with major launches were more affected than others. New launches came with newer electronics where data around the success of these products could not easily be forecasted. When these products performed well, it was more difficult to build additional capacity of semiconductors in an industry already reeling under capacity constraints.
Interchangeable parts: Companies that used the same semiconductors across multiple products were able to manage better. They were able to divert available supplies to higher demand products without disruption to sales.
How is the industry reacting to the shortage?
This has been a wakeup call for the Automotive industry. The advent of EVs and AVs will make the industry even more reliant on semiconductors. This industry is not looking at ways to mitigate risks over the long term over the supply of semiconductors.
A few steps the industry has taken to date include:
Mapping the semiconductors used across each Tier 1, 2 and 3 supplier and their manufacturers
Interacting directly with semiconductor manufacturers to understand short and medium term capacity constraints
Prioritising semiconductor supplies based on models in high demand
While this will help ease some supply constraints, we believe that the shortages will continue for another 6 to 9 months. At the same time, the industry will also work towards optimising the supply chain to manage risk and downturns. This may necessitate a higher costs as they second source critical supplies or increase buffer stocks of semiconductors on hand.
At the same time, the industry will also need to identify other industries further down in the supply chain to avoid supply shocks in the near future. Please subscribe to our blog for Automotive industry related article at Blog. If you are looking to buy or sell your used truck or bus, please visit us at Leaptrucks.
We summarise 6 key CV industry trends and analyse the sales of Commercial Vehicles in February 2021. February was a challenging month for the industry with the top 5 manufacturers showing a modest de-growth of (1%) in Feb 2021 vs Feb 2020. Year to date, the industry is continues to be down by over (30%).
Segment Level Performance
CV Sales by Segment Feb 2021
The M&HCV Segment and the I&LCV Segment both showed strong growth of 24% and 18% respectively. The SCV segment continued to be plagued by supply issues degrowing by (9%). While the Passenger segment continued to degrow, it had its best monthly performance in a challenging year with a lower de-growth of (52%).
Manufacturer Level Performance
CV Sales by manufacturer Feb 2021
Maruti continued to perform strongly over a low base volume last year. Eicher Trucks and Buses and Ashok Leyland followed with a strong performance of 25% and 20% respectively. Tata Motors grew by 2% while Mahindra was the only manufacturer to de-grow by (42%) over significant supply challenges.
6 Key CV industry trends
The industry continues to face many short term challenges
Strong Recovery: The CV industry is down by (30%) year to date. To put things in perspective, the industry was down over (85%) at the end of Q1 2020. To add to this, the bus industry, which made up about 9% of the CV industry volumes last year was severely impacted by Covid, down by over (83%). Considering the impact of Covid and these challenges, the turnaround has been pretty remarkable.
Impact of BS6 transition: All motor vehicles in India transitioned from BS4 to BS6 emission norms by March 31, 2020. Consequently, the sales from February 2020 were lower than the year prior in preparation of the transition. Despite a lower base, volumes still de-grew by (1%) in February 2021. This clearly indicates that the industry continues to be in the process of recovery. We anticipate significant growth in March 2021 since the sales in March 2020 was even lower than the sales in February 2020.
Rising fuel prices: Diesel prices in India have grown at an average of 30% over the past year (Rs. 66.29 on 1/3/2020 vs Rs. 86.37 on 1/3/2021 in Bangalore). At a time when demand was stabilizing to pre-Covid levels, rising fuel prices continue to dampen logistics operations.
Lagging freight rates: It is largely estimated that less that less than 20% of freight is moved under long term contracts that are linked to fuel rates. Large operators with long term contracts linked are able to manage these fuel price increases better with a lower impact to profitability. However, smaller operators with short term or no contracts continue to struggle as fuel and other input costs continue to grow. It will be challenging for freight rates to also continue to rise indefinitely because this will have a negative impact on the prices of commodities and essential supplies.
Component supply challenges: Supply issues continue to plague OEMs as indicated by Mahindra in a recent press release. New vehicle deliveries will continue to pose a challenge due to the delay in delivery of semi conductors and other critical components anticipated over the the next 4 months.
The rise of CNG: With the advent of the BS6 era, customers are now left with a wider choice of engines and fuel for their trucks. Petrol and CNG are now competing with Diesel for customers, especially in last mile transportation. As the number of CNG pumps increases, CNG is now becoming an attractive choice as both a cleaner and environment friendly for companies as well as a significantly cheaper option for operators. Offering similar mileage, 1 kg of CNG is 40% cheaper than 1L of Diesel (Rs. 51.50 vs Diesel at Rs. 86.37 in Bangalore). If you are worried about availability, rest assured that the penetration of CNG is significantly more than you think as seen in this map from Maruti Suzuki that shows all CNG pumps in and around your city.
We hope you enjoyed our article on the 6 Key CV industry trends. Please share your comments or feedback. Your feedback makes us write more insightful articles.
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Segment wise sales by manufacturer
This segment summarises the segment wise performance across SCV, I&LCV, M&HCV and Bus segments. Please note that our analysis only includes the 5 manufacturers that share data in the public domain.
a. SCV Segment Performance
SCV Sales Feb 2021
b. I&LCV Segment Performance
I&LCV Sales Feb 2021
c. M&HCV Segment Performance
M&HCV Sales Feb 2021
d. Bus Segment Performance
Bus Sales Feb 2021
You can also download this article which was also published in MotorIndia Magazine’s March edition by clicking the link below.
In this article, we examine the CV sales overview for December 2020. We analyse the sales at the segment level and the manufacturer level and review four challenges faced by the industry as we head into Q4.
Segment wise sales
Segment-wise CV sales Dec 2020
The SCV, I&LCV and the M&HCV segments have all registered a growth against the same period last year. As anticipated, the Passenger segment continues to struggle. The M&HCV segment has registered a growth of 34%, the strongest growth seen post the beginning of the pandemic. The SCV segment and the L&ICV segment both continue to perform consistently.
Manufacturer wise sales
Manufacturer-wise CV sales December 2020
Maruti posted a very strong growth of 260% in Dec 2020. They are also the only manufacturer to post a growth for the financial year to date (10% year on year growth in 2020 vs. 2019). Ashok Leyland also posted a strong growth of 14%. Tata Motors, Eicher and Mahindra posted a slight drop against their performance last year.
SCV Segment sales Dec 2020
SCV Sales December 2020
The transition of the mini SCV truck market to Petrol in BS6 technology has helped Maruti improve their volumes and marketshare. Petrol need lesser after treatment and lower maintenance than similar diesel engines. Ashok Leyland also continues to perform strongly with Dost and Bada Dost, growing at 42% in December 2020. Mahindra and Tata posted slight de-growths in December. The SCV segment is the best performer in the CV market this year with a year to date de-growth of (-24%).
I&LCV sales Dec 2020
I&LCV Sales December 2020
The market leaders in the I&LCV segment, Tata Motors and Eicher posted strong growth of 8% and 5% respectively. Mahindra had a de-growth of (36%) in December (they report both LCV & HCV together). However, this segment has de-grown by (42%) this year.
M&HCV sales Dec 2020
M&HCV Sales December 2020
The M&HCV segment posted a very strong growth of 34% in December 2020. This bodes well for the segment which has been looking for some positive news since the beginning of the year. Ashok Leyland posted a growth of 56%, followed by Eicher at 50% and Tata Motors at 20%. Eicher has performed strongly in the BS6 era leveraging Volvo technology with a de-growth of only (27%) for the year as against a de-growth of (50%) for Tata Motors and Ashok Leyland. However, this segment has seen a year to date de-growth of (49%).
Passenger sales Dec 2020
Passenger sales December 2020
The passenger segment continues to struggle to recover from the impact of the Covid. The pandemic has reduced the reliance on bus transportation and increased the reliance on 2 wheeler and car transportation. Hence all manufacturers have de-grown by over (75%). We anticipate that this segment will continue to have a challenging Q4 in 2020. The segment has also de-grown by (86%) for the year.
CV Sales overview: 4 challenges for Q4 2020
Lower freight rates: Freight rates dropped in slightly in the lower single digits in the month of December. A slight decrease in loads post the holiday season and some additional capacity coming online may have contributed to this decrease.
Rising Diesel prices: Diesel prices rose by 3% in December. Thus, lower freight rates and rising diesel prices continue to put pressure on operators who are trying to return to profitable operations after a challenging Q1 & Q2 2020.
OEM Supplier constraints: OEMs continue to face significant supplier constraints. While imports continue to be a challenge in general, ECU supplies have specifically become a bottleneck. Consequently, Bosch indicated in December that it was facing a severe shortage of semiconductors which is used in the manufacture of microprocessors which are in turn used to make ECUs, which form an integral part of BS6 diesel trucks.
Commodity price increases: Commodity prices have been steadily increasing over the past few months. This is also magnified by import restrictions that are also currently in place. Hence, OEMs are in turn forced to pass on a portion of this to customers through price increases. (See the notification from Tata Motors here)
We hope you enjoyed the CV sales overview for December 2020. Do subscribe to our blog. Leaptrucks is a marketplace for buying and selling used trucks. You can see all our assets at leaptrucks.in.
This was expected to be a quiet transition year. It marked a long-awaited environment-friendly, but highly complex transition from Euro 4 to Euro 6 standards. Little did we anticipate the impact of an invisible virus that brought the world to its knees, and the CV industry to a halt. As we exited a total lockdown, the industry witnessed drama at the Supreme Court related to vehicle registrations. Small businesses and operators struggled to pay their EMIs and looked for intervention. All through the crisis, we were left looking for solutions to keep our homes well stocked while we stayed home.
We summarise the year in 5 defining moments that marked the trials, tribulations and triumphs of the CV industry.
Defining moment 1: World Class technology made in India
The year 2020 was expected to pose a challenge to the CV industry. A transition to significantly lower emission BS6 trucks was scheduled for April 1, 2020. Emissions in Diesel trucks & buses would reduce by over 50 to 90%, significantly reducing pollution from vehicle exhausts. To complicate things, India would be making the transition in less than a third of the time it took Europe and China to do the same.
While the odds were stacked against them, all OEMs spent a lot of time and energy in preparing for the transition. They invested heavily in technology (over hundreds of crores each). They worked closely with their parent companies, their Joint Venture partners or collaborated with global technology leaders to minimise the learning curve. The technology was adapted to Indian conditions. They collaborated with suppliers locally and globally to make it cost effective. Then they tested, learnt and re-tested the technology in simulations, inside sophisticated labs and on challenging road conditions. Thousands of technicians were trained to handle the all-new electro-mechanical technology at service centres across the country.
The results thus far have been stellar. BS6 trucks offered by all OEMs have performed better than expected while complying with world class emission standards. Trucks have been built with a focus on safety of drivers, provide improved driving comfort and have best in class features like Bluetooth connectivity and cruise control. Most importantly, OEMs have been able to offer all these with the same or better fuel efficiency in comparison to BS4 trucks.
Indian technology has come of age and we can be proud of the OEM Technology and Product Development teams developing best in class technology in India!
Defining Moment 2: A virus that brought us down to our knees
From newborns to the elderly, the year 2020 cannot be defined without a reference to Covid 19. Covid left a lasting impression on every industry in the economy. Multiple countrywide lockdowns brought the country to a standstill for over 2 months. Only essential goods movement was allowed, specifically vegetables, fruits, milk, food items, pulses and FMCG. Over 90% of the CV industry was paralysed.
As the lockdown was lifted, the economy struggled to get back on its feet. Operators struggled as trips were hard to come by. When trips came by, drivers were hard to find as migrant drivers had returned home. When they found both, they had to deal with local and interstate lockdowns, ever changing Covid testing requirements and the general fear of contracting Covid-19. From a viability perspective, diesel prices had gone up by over 21% and Freight rates went down by over 10 to 20% making survival challenging.
Things have fortunately gotten progressively better for the CV industry. Freight rates have almost touched pre-Covid levels in some routes since October. Diesel prices have softened and bookings are improving.
While Covid nearly broke the back of the industry, it also brought out the industry’s indomitable spirit.
Defining Moment 3: An Association rising to the Occasion
In order to ensure a smooth transition to BS6 technology, the Supreme Court and the Central Government had laid down clear rules. Registration of BS4 vehicles was to be completed by March 31, 2020. OEMs, their Dealers and Customers were well prepared to comply with the requirements. However, the total lockdown implemented by the Central Government on March 25th made this task challenging. As the central lockdown was lifted, local restrictions continued to plague smooth operations across Road Transport Offices (RTOs) across the country. Registration of pending BS4 Commercial Vehicles were further delayed.
The Supreme court intervened to ensure that OEMs, Dealers and Customers were complying with the law. Due to the number of players involved, a lot of confusion was created and the registration of many vehicles was in limbo. The Federation of Automobile Dealers Association (FADA) stepped in to fill the Void. They were the voice of reason for Dealers, OEMs and Customers as a single point of contact to clarify all the concerns of the Supreme Court. FADA used data collated from across hundreds of dealers spread across the country to allay the fears of the Supreme Court. They worked closely with the RTOs to ensure that the decision was implemented uniformly with minimal suffering for operators.
FADA rose to the occasion to be the voice of reason at a time of crisis.
Defining Moment 4: Timely policy action to protect Operators and Small Businesses
As the government announced a total lockdown, most businesses across the country came to a standstill. With no income to repay their loans, businesses went into panic mode. The RBI swung into action and immediately announced a 3-month EMI moratorium to offer support. The recovery was significantly slower than anticipated. Businesses struggled to gain momentum. The RBI once again intervened and proactively extended the moratorium by an additional 3 months. This gave businesses time to recover and become healthier before Loan EMIs re-started again.
The timely and proactive action by the country’s Central bank provided many Logistics Operators & SMEs the lifeline to survive a potential economic disaster. The absence of timely intervention would have led to significant number of defaults across operators and structurally impaired the operations of many of the nation’s Banks and NBFCs.
The RBI was our Johnny on the spot for the most deserving entrepreneurs in the country.
Defining Moment 5: Our everyday unsung Heroes
As the nation moved into a total lockdown, everyone stayed at home to slow down the Covid virus. Healthcare workers focused on saving people who had contracted Covid. Everyone worried about the effectiveness of the supply chain, possibly long queues in stores and the possibility of riots in store. It turned out that we had nothing to worry about.
Logistics operators and drivers ensured delivery of milk at dawn, vegetables, fruits and essential goods in stores and timely deliveries to urban and rural homes. They braved the fear of Covid as they kept the supply chain moving. They kept the country motoring through our darkest days, feeding our bellies with food and our souls with hope.
Logistics Operators and Drivers were our unsung industry heroes of 2020.
While 2020 was a challenging year, these 5 moments defined the resilience of the CV industry. In times of crisis like the one we faced in 2020, there were many more moments that were noteworthy that did not make the list. We look forward to your comments on any defining moments we may have missed in our article.
CV Clips – Bus Overview Nov ’20. A brief overview of the performance of the Bus segment in the month of November 2020. We review some key trends, key market challenges and our observations on the passenger segment.
