The changing landscape of CV industry
The changes visiting the Indian CV industry are worthy of being termed as radical.
The changes visiting the Indian CV industry are worthy of being termed as radical.
Numerous announcements and the roll-out of regulations mark the changes that continue to visit the Indian CV industry. Their nature makes them eligible of being termed as ‘radical’. A ‘Radical Change’ is perhaps the best phrase to describe what the commercial vehicle segment in India is currently going through. It may be difficult to nail the exact place and time when it all started, the fact is, it did, and with enough thrust to trigger a ‘radical’ change. Backtracking a bit, and the first trigger that comes to mind is the GST. The next that comes to mind is the proposal of vehicle scrappage policy. The sudden shift from BSIII emission norms to BSIV emission norms took place last year. It was no less ‘radical’. Another ‘radical’ change around the corner is the shift to BSVI emission norms. If the change visiting the CV industry will subside after the shift to
BSVI norms, the same does not seem to hold true. As the talk of reaching BSVI norms by skipping BSV norms gained prominence, the talk of going electrc also picked up pace. It became clear, that the winds of change would not die down after the move to BSIV. They would work in not one, but many directions instead. An example of that was the announcement of new axle norms.
For the key stakeholders of the CV industry, the ‘radical’ change is influencing the purchase of vehicles. Rather than being planned, vehicle purchases are turning into reactions. Medium and small fleet operators have developed a fear that a new regulation will suddenly turn their ageing fleet illegal, almost overnight. They are coming to see that their profitability is at risk every day, and day after day. For them, the prime indicators for this are the fluctuating fuel prices and falling contractual freight rates in some segments due to the new axle norms. The mechanics are slowly watching their jobs dwindle. From carrying out substantial repairs, they are now seeing themselves carrying out minor repairs such as fluid changes and greasing. They are waiting for OEMs to empower them. To train and incentivise them to service the modern CVs with an amount of electronics on board. For OEMs, apart from facing the competition in the market, there is another battle to be fought. This includes the need to inculcate new technologies and meet not just the new, tighter emission norms by opting for Exhaust Gas Recirculation (EGR) and Selective Catalyst Reduction (SCR), but also to meet the new axle loading norms and various other requirements that seem to spring up now and then. With the added stress on staying relevant, the design and product development teams at OEMs are busy. They are under unrelenting pressure to get the right combination of product capability and features. They are under pressure to get there before the competition does.
One school of thought is that, there’s insufficient time available for product testing and validation. This makes it risky in an increasingly competitive environment. Another school of thought is that, the pressure being exerted on design and product development will create a sense of urgency. The sense of urgency would in-turn lead to greater inventions and discoveries. The development of technology for BSVI and electrification at Indian costs for example. With the possibility of one article addressing all the factors of radical change low, it could serve to look at two factors – new axle norms and electrification, that seem from the outside to call OEMs to pull out all the stops to stay in the game. The new axle load norms are expected to influence upward segment shifts starting at 14-tonnes (as per the old GVW rating) and going all the way up to the tractor trailers. Electrification, at the other end, would most likely have an initial impact in the lower tonnage segments. In passenger carriage rather than goods CVs.
New axle load norms
The announcement of new axle load norms was thought to give fleets the freedom to load their existing vehicles by up to 25 per cent more. This would amount to a great deal, and especially in the wake of inflationary operating pressures involving driver salaries, fuel prices and other challenges (like driver
shortage and fuel pilferage). In reality, the permissible payloads have increased. They have however come at a price, and not just by the way of increased taxes, but also by the way of potentially higher fuel costs and higher tear and wear. In an already troubled environment of rising fuel prices and the risk of end-user companies negotiating hard for reductions in contractual freight rates, a majority of fleets have come to see little or no benefit from the new norm, at least in the near term. Those that service the open market have better chances of making up for losses when freight sentiments are high. The contracted service providers will have to wait. They will have to settle for the comfort of assured loads.
A million dollar question for OEMs is whether demand patterns will shift between tonnage segments, and whether these changes will advance or defer customer purchases. Shifts in demand patterns between tonnages are contingent on changes in product features such as load body dimensions, engine power and tyres. With the threat of falling contractual freight rates it is quite likely that transporters servicing contracts will be open to shifting to lower segment vehicles with (the new) higher payloads. Stress will be on scoring better operating economics. The trend for segments such as tankers, cement bulkers and trailers could be very different because of a wider range of factors determining the vehicle required for a route or for a particular delivery pattern. While OEMs work on basic upgrades across their product portfolios, it is logical of them to keep an eye out for niche customer requirements. They are also certain to keep an eye out for the trends that arise from changes that are capable of creating a new playing field for OEMs.
Electrification
Given the growing concerns surrounding pollution, and unpredictable fuel prices, there could be no other time than now to drive alternate fuels, hybridisation and electrification of CVs. The new axle norms, if anything, have further distanced the prospect of electrification of commercial vehicles for goods carriage. From a practical stand point however, the case for alternate fuels, hybridisation and electrification continues to remain stronger for CVs that carry people. For passenger carriage, the key restraint for alternate fuels continues to be their dispersed availability. Despite certain operating environments providing the atmosphere for the deployment of hybrids and full-electric buses, cost continues to be a common restraint. Other key restraints include the lack of charging infrastructure, safety and range anxiety. The school, staff, and city route permit segments (where the distance per trip is short) make strong contenders for the deployment of electric buses. In segments like inter-city, low utilisation levels, seasonal trends, pressures on ticket fares because of competition, and growing affordability as well as air travel connectivity are negatively influencing the demand for premium buses. The
preference and affordability of premium buses is going downhill. To talk about electric and hybrid buses in such a scenario would simply be not worth it. Especially when segments like these are concerned.
Though at a nascent stage, there is no dearth of electric buses to choose from. There are products on offer from Tata Motors, Ashok Leyland, VECV, JBM Auto and Olectra. Growth of electric buses, it is clear, will be driven by state and city transport units. This may be subject to grants from the respective state governments and even the central government. The fact is, the state and city transport units have the most potential to build a fleet of electric vehicles by bearing the high cost of acquisition. It is they who have the most potential to build a fleet of electric vehicles by bearing the longer ROI. The deployment of such buses will also allow private fleet owners to witness, experience and warm up to the idea of electric buses in their own fleets. This would amount to an estimated time span of four to five years. The adoption of electric buses in other application segments will have to wait until three critical restraints – cost of acquisition, fleet owner mind-set (awareness, understanding and acceptance of the technology) and the lack of charging infrastructure, are addressed. Innovative business models for better revenue, utilisation, shorter ROI, and lower cost of acquisition and ownership could expedite the electrification of CVs in India. Till then, the development will be slow and steady.
Collin Noronha is the Program Manager, Mobility (Automotive & Transportation) Practice, Frost & Sullivan. The views expressed by the author are his personal opinions and do not necessarily reflect the view of CV magazine.