Scaling The 1 Million Peak of FY19 – Cues From H1-FY23
The CV story so far has been a mixed bag of sorts though overall a positive one. Shyam Maller, Former Executive Vice President - Sales & Marketing, at VE Commercial Vehicles Ltd. writes how while the domestic sales are on an up trend on a sequential month-on-month basis between April-Sept’ FY2023, export volumes though have been moving downhill on global cues.
The CV story so far has been a mixed bag of sorts though overall a positive one. Shyam Maller, Former Executive Vice President - Sales & Marketing, at VE Commercial Vehicles Ltd. writes how while the domestic sales are on an uptrend on a sequential month-on-month basis between April-Sept’ FY2023, export volumes though have been moving downhill on global cues.
In this article, we shall be only focusing on the domestic market and specifically deep diving into what the stats are telling us in H1-FY23 and the likely prognosis for the full fiscal. It will be interesting to take a shot (play the Nostradamus) on whether the CV industry will come within striking distance of the one million units recorded in 2018-19. FY23 began with a bang with April reporting one of the best-ever Total Industry Volumes (TIV) in many years. Robust growth was witnessed in TIV (see the Exhibit A) with the Q2-FY23 volumes crossing that of Q1-FY23.
ICVs ON A ROLL
ICVs are the best performing tonnage segment with the H1-FY23 volumes surpassing that recorded in H1-FY19 and that too by a handsome margin. Growth has been reported particularly in the 15-16-tonne GVW segment with express logistics, and e-Commerce driving up the volumes. This tonnage segment has witnessed a swing towards CNG for most parts of the last fiscal (FY21) as well as up to July 2022 (see the Exhibit
B). At its peak, CNG ICVs were nearly 45 per cent of the total ICV sales. However, with the runaway rise in CNG prices and the arbitrage with diesel
prices sharply narrowing down, Total Cost of Ownership (TCO) considerations have swung the needle again towards diesel ICVs.
4X2R - EXCEEDING EXPECTATIONS
At 18.5-tonne GVW and with a payload over 12-tonne, sales of these utilitarian workhorses powered by fuel-efficient, fourcylinder engines, in H1-FY23 have doubled on a Year-over-Year (YoY) basis having also crossed the H1-FY2019 levels. With deck lengths ranging from 18 ft. to 32.5 ft., they are amenable to a host of end-use applications. This segment (post revision of axle load norms) has gained at the expense of 6x2 as well as upgrades from the higher end of ICVs. Tata Motors recently upped the ante by launching a 19-tonne GVW truck (Tata Signa 1918) — the first CNG truck in the M&HCV range in India. This tonnage node is expected to continue to constitute a robust share of the overall M&HCV TIV.
THE CONTINUED ASCENDANCY OF 42/48-TONNE GVW MAVs AND TRACTOR TRAILERS
The share of 42/48-tonne GVW MAVs has risen from 63 per cent of total MAVs in FY22 to 68 per cent in H1-FY23. The tractor-trailers too, benefiting from the 50-tonne GCW on 4x2 and the increased GCW on 6x4 to 55-tonne, now constitute 22 per cent of the M&HCV TIV in H1-FY23 compared to 18 per cent in FY22. (see the Exhibit C) What is driving this shift:
the impact of mega warehouses post the rollout of Goods and Services Tax (GST) and the growing presence of Third-party Logistics (3PL) with express logistics providers as well as the organised, mid-to-large fleet owners. They are benefiting from better TCO and lower cost per tonne per kilometre on the higher GVW trucks.
VALUE TRUCKS: A CANDID REVIEW
Let’s take a look at how the CV industry has performed-segment wise in the first half (H1) from FY2018-22. When Daimler India Commercial Vehicles (DICV), VE Commercial Vehicles (VECV) and Mahindra Navistar, MAN entered the Indian CV market that was dominated by the duo poly of Tata Motors and Ashok Leyland, it was the stated objective of these companies to modernise trucking and move customers to new technology, feature-rich, safe trucks.
There have been considerable misgivings about the deferral of ‘Truck Code’ implementation, the M&HCV industry lags badly in mandating: safe, ergonomic, company-built cabs as opposed to composite body cabins made on truck cowls, implementation of climate control/AC cabins on long haul trucks was also stymied by “vested interests” and badly diluted to “air blowers” that hardly contribute to improvement in driver comfort and ability to drive fatigue free specifically for longer distances.
However, this has not come true. The average value trucks share in the overall M&HCVs has more or less hovered around the 15-16 per cent mark. The only blips (when their share moved up to 16-17 per cent) were in 2020-21; 2021-22 when a couple of the value truck OEMs were
ready with their BSVI variants well before the deadline of April 01’ 2020 allowing them to seize market share momentarily.
If one were to step back and make a report card after these trucks being on the Indian roads for over 10-12 years now and see the market share these OEMs have in the overall CV TIV, compared to that of Tata Motors and Ashok Leyland combined. (see the Exhibit E)
Thankfully, while we are seeing significantly higher adoption of the company built cabins, especially in the case of tippers and tractor heads (for Tractor Trailers), fleet owners and logistics companies are not yet loosening their purse strings by adopting AC cabins in long haul MAVs — that continue to predominantly see cowl purchases.
MODERN TRUCKS-SAFER AND PRODUCTIVE
However, the CV industry is also evolving like never before. New paradigms and never before features are being introduced in the M&HCV segment – to improve safety, enhance productivity and increase profitability. The focus is on making trucks reliable, and durable and improving “On Road Time”. ‘More time on the roads and less in the workshop’ is the credo of the truck OEMs today: Intelligent Telematics ( that monitor and aid fuel, uptime and trip management), driver fatigue monitoring system and features like unitised bearings, automated centralised lubrication system, Tyre Pressure Monitoring System (TPMS) etc.
Very recently Tata Motors raised the bar on safety in commercial vehicles by showcasing their Prima range with Advance Driver Assistance System (ADAS) with features like collision mitigation system, lane departure warning, electronic stability control to name a few.
WHAT THE CLIMATIC FUTURE HOLDS FOR US
Decarbonisation, zero tailpipe emissions and green fuels are the new lexicon for auto OEMs as they emerge from the ICE age that they have been living in for over a century. As they navigate the uncharted path from IC engines to the exciting journey of new-age trucks and buses. BEVs/ FCEVs, Hybrids, green hydrogen, unfolding the six levels of vehicle autonomy etc, it’s a new world order that will emerge. And the rubber has already hit the road. It
is anybody’s guess how the auto landscape and in particular the CV ecosystem will look like in 2025-2030. While India in its Paris Climate Agreement has committed to working out a roadmap to be fossil free by 2070, there is a step-through or a transition, as the government is trying to stem the imports of petroleum to also curtail forex outflow. Gaining currency in the immediate term are some OEMs readying LNG trucks and buses (long-distance operations) while the state-owned Oil PSU besides GAIL and IGL are setting up LNG stations along the GQ and N-S E-W corridors. Some startups have also developed BEV – M&HCVs.
Green Hydrogen is currently the holy grail for truck OEMs and there are several working feverishly to slash the current cost from USD ($) five per kg to $ two per kg. Intensive efforts are underway across the world to halve the electrolyser cost by 2030. The needle is moving towards green hydrogen: as natural gas prices rise making it costlier to produce hydrogen from fossil fuels and Lithium and other precious metals reserves will deplete making batteries expensive.
HOW OCTOBER 22 FARED
Calendar quarter-end months are conventionally big wholesale months for the CV industry and September 22 was no exception. It turned out to be the best month in H1-FY23 with total (domestic+exports sales) crossing the 100,000 mark. Sales recorded were 105,400 units (see Exhibit
G). But naturally, in October 22 when the channel partners were busy retailing, the offtake for the month was softer across the spectrum of the CV industry. Domestic sales clocked 84,700 units. Only export sales rose in
October vis a vis September.
On a YoY basis, the October 22 sales for the domestic CV industry grew 24 per cent over the last fiscal. Stratified segment-wise, the YoY October growth in sales for I&LCV, M&HCV, buses and the sub-five tonne were respectively - 14 per cent, 40 per cent, 146 per cent and 25 per cent. If we look at the months gone by ie YTD Oct 2022, the domestic CV industry is up 55 per cent. While the heavy lifting has been done by M&HCVs which has recorded a 69 per cent growth, the sub-five-tonne and I&LCVs have respectively registered a growth of 44 per cent and 40 per cent. Only exports have contracted by 12 per cent. Given the current pace of growth and even if one were to factor in the impact of an interest rate hike in December, any potential slackening of the pace of CV sales is very unlikely. A resilient domestic market propped by very encouraging high-frequency macroeconomic indicators augur well for the CV industry.
PROGNOSTICATING FY 23: WILL THE CV INDUSTRY SUMMIT 1,000,000 UNITS?
It’s literally a million-dollar ( INR, if you may) question that confounds us. The previous high for domestic market sales was FY19 at 10,32,250 units. The run rate that the industry has totted up is rather impressive in H1-FY23 vs FY19 (see Exhibit H).
It is absolutely clear that the I&LCV segment will cross the FY19 peak of 117,300 units - it is already clocking in 10,000 odd units per month. The M&HCV segment is flattering to deceive this year — despite the underlying demand drivers being strong. On the one hand, while the 4x2R and the tractortrailer segment are coming of age ( and are slated to cross FY19 levels), the MAVs are witnessing the upward migration to higher GVW nodes of 42/48-tonne at the expense of 28 and 35-tonne. And therefore in the billion-tonne km model, the MAVs will not be hitting the FY19 highs.
In my view, given the volatile macroeconomic factors ( driven by global factors) though, despite the cliché, “the India story and macro fundamentals are strong”, the India domestic CV industry in FY23 may still fall short of the FY19 peak by around 35,000-40,000 units. ........................................................... Shyam Maller is the Former Executive Vice President - Sales & Marketing at VE Commercial Vehicles Ltd. The assessment and views expressed by him are personal.