Slow and steady growth for India’s CV segment

The commercial vehicle (CV) segment, which is considered to be the barometer of economic activity, is likely to reach pre-pandemic volumes with modest growth in the range of two to four percent year-on-year during FY2024.

However, the projected growth is relatively lower than the 7–10 percent growth that was forecast earlier in the year, after which the demand slowed down on account of stress in rural areas, price increases due to tighter emission norms, and inflationary factors, among others. To give a perspective, during the previous fiscal years of 2023 and 2022, the segment witnessed 26 percent and 34 percent Year on Year growth, respectively, on the back of a rebound in demand post-pandemic and a strong pick-up in economic activities.

However, industry experts are confident that the market will improve in FY24, albeit at a low growth rate, due to high base helped by betterments in economic activity, high traction in infrastructure-related activities spurred by a government push, healthy freight availability, and a new vehicle scrappage policy push towards cleaner vehicles driving replacement demand, among others.

Heavy-duty trucks in high gear

Gagandeep Singh Gandhok, the Senior Vice President of HD Truck Business at Volvo Eicher Commercial Vehicles (VECV), believes that the industry sales volume for heavy duty trucks is likely to touch 2,75,000–2,80,000 units by the end of FY24. In comparison, 2,47,858 units of heavy-duty trucks (more than 18.5 tonnes) were sold in FY23.

He was expressing his optimistic outlook on the ongoing and planned growth in mining, infrastructure, and road-related projects during an interaction with Autocar Professional. “Infrastructure projects, especially roads, announced by the government will significantly change the face of the industry,” Gandhok said.

The development should be seen in the context of new tenders worth approximately Rs 2 lakh crore that are either in the process of being finalised or nearing completion for a range of road projects and motorways in the next few months. This amount is more than enough to give a further boost to the construction industry for the next few years, the experts pointed out.

Further, the industry stakeholders anticipate a favourable demand scenario for the road logistics sector in FY24, with the industry's revenue growth pegged at six to nine percent in FY24 on an elevated base of FY23, driven primarily by demand from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods, coupled with the industry’s paradigm shift towards organised logistics players, post-GST, and e-way bill implementation. ICRA expects the outlook for the sector to remain stable.

PB Balaji, Group CFO, Tata Motors, spoke with Autocar Professional on the sidelines of an industry event. “The CV industry has so far been good, and we will have to wait and see how it plays out in the coming months. Nothing to worry about,” he said.

Bus demand outpaces that of MHCV

Shenu Agarwal, MD and CEO of Ashok Leyland, told Autocar Professional, "The demand for buses is almost 2.5 times that of the MHCV growth. He attributed it to the strong demand from both the government and private sectors, which culminated in the pent-up demand as well as the slowdown earlier.

E-buses to pick up pace

ICRA foresees electric buses (e-buses) to be at the forefront of India’s electrification drive, with the segment expected to witness healthy traction going forward. ICRA estimates e-buses will account for 11–13 percent of new bus sales by FY25. The traction in the e-bus segment has already been visible over the past couple of years, with e-bus volumes as well as penetration levels improving consistently to seven percent in FY23. Steady progress has been made over this period towards meeting the e-bus deployment targets under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, and this is likely to gain pace over the coming months until the scheme expires in March 2024. Additionally, many state electric vehicle (EV) policies have announced specific targets and timelines for e-bus adoption, thereby creating a roadmap for electrification.

According to Kinjal Shah, Vice President and Co-Group Head, Corporate Ratings, ICRA, “Bus cost is the single largest cost element in the e-bus project, accounting for 75–80 percent of the project cost. The capital subsidy of Rs 35–55 lakh per bus under the FAME II scheme can fund a large part of the project costs, up to as much as 40 percent, which augurs well for the viability of these projects. Additionally, coupled with the significant savings on fuel costs (3-5x cheaper vis-à-vis conventional buses), these subsidies help lower the total cost of ownership of e-buses by 10–25 percent compared to conventional CNG or diesel buses.”

In addition to these state policies and government schemes, the government has also sought to spur e-bus adoption through bid aggregation under tenders floated by Convergence Energy Services (CESL). With the enhanced volumes under these tenders due to demand aggregation, there was healthy interest and participation by the original equipment manufacturers (OEMs) in the first two tenders, even without subsidies on offer in the second tender. However, CESL’s third tender saw limited OEM participation due to lack of a payment security mechanism and a dry lease model of operation proposed for it, which had to be subsequently scrapped. Addressing these concerns of the OEMs would be critical to ensuring the increased pace of e-bus adoption in the country.

The government has also recently announced the PM-eBus Sewa scheme, which aims to provide 10,000 e-buses to 169 cities under a public-private partnership (PPP) model. With the FAME II scheme expiring in March 2024, such demand aggregation by CESL or under the PM-eBus Sewa scheme is expected to support the e-bus volumes as subsidies gradually get phased out.

The gross cost contract (GCC) model, or the opex model of operations, has emerged as the preferred route for e-bus adoption in India, especially as the FAME II scheme offers capital subsidies only for buses procured under this route. This helps significantly alleviate the upfront capital burden on the cash-strapped State Road Transport Undertakings (SRTUs) while spurring electrification by increasing private participation in the segment.

However, the model is currently evolving. As per ICRA, while execution-related risks remain relatively low for these projects, operational risks are somewhat higher, given the lack of an adequate track record of EVs in the country. Operators with direct backing from the e-bus OEMs and with adequate financial wherewithal and flexibility would be better placed to establish a strong foothold in this segment.

“Although Niti Aayog has outlined a model concession agreement for the e-bus projects under the GCC model, keeping in mind the interests of various stakeholders, several risks related to project execution, bus performance, counterparty risk, etc. are currently playing out. Nevertheless, as the model matures, e-buses are expected to witness increased adoption going forward, aided by the favourable cost economics. Among the various automotive segments, buses would be among the first to witness faster electrification, especially for intra-city operations. While limited charging infrastructure, range anxiety, and high capital costs have been the key deterrents to electrification across segments, these are relatively low for the bus segment,” added Shah.

LCV truck demand moderates

According to projections made by the rating agency ICRA, the impressive growth that light commercial vehicle (LCV) trucks experienced during FY23 is likely to slow down and settle at a modest growth rate of zero to two percent. It attributes this projection to the challenging high base effect and a slowdown in e-commerce demand.

The surge in e-commerce activity has been a driving force behind the increased demand for efficient hub-and-spoke-driven last-mile deliveries across the nation. This surge is reflected in the impressive retail figures of 5,54,585 LCVs during FY2023, capturing a notable 59 percent share of the total commercial vehicle (CV) sales. The LCV segment experienced a growth of 15 percent in FY22, marking a recovery from the 12 percent decline witnessed in FY21, which coincided with the peak of the pandemic. The growth trajectory of LCVs appears to correlate with the expansion of the e-commerce market. While the pandemic accelerated the adoption of online shopping, leading to a surge in e-commerce activities, a decrease in funding over the past year has resulted in a slowdown in the sector.

SCV to clock low double-digit expansion next year

The small commercial vehicle segment, which experienced modest low single-digit growth in CY23 due to a K-shaped recovery, is expected to see strong growth next year with low double-digit expansion. According to Vinay Pathak, Business Head, SCV and PU, Tata Motors, consumption, or per capita income, rather than the GDP, as in the case of trucks, drives the small commercial vehicle and pickup segment.

As per Pathak, "The government has taken cognisance of the stress in certain segments, like rural pockets and others, and is working on facilitating the affected population by introducing several schemes that will help boost demand." He expects the SCV demand to become robust over the next few months. "It will lead to low double-digit growth in the coming year," Pathak noted.  

This feature was first published in Autocar Professional's December 15, 2023 issue.