Three-wheeler segment hit by Covid impact, low demand

Nandana James Mumbai | Updated on October 05, 2020 Published on October 05, 2020

While the Covid-19 pandemic has spelled gloom for the entire automobile industry, the three-wheeler sector in particular has borne the brunt due to factors like the reduced requirement for last-mile commute with the closure of offices, schools and other public places; preference for personal mobility; and financiers’ reluctance to fund the sector.

Three-wheeler domestic sales stood at 40,022 units during April-August 2020, compared to 2,64,334 units in April-August 2019, marking a decline of 84.86 per cent, according to the Society of Indian Automobile Manufacturers (SIAM). The decline was much lower in the passenger vehicle (PV) and two-wheeler segments during the same time period, with PV sales declining by 49.41 per cent year-on-year and two-wheeler sales declining by 48.57 per cent y-o-y, as per SIAM data.

Low demand

“Most of our passenger three-wheelers are used in the shared mobility segment, which has been affected the most due to low passenger movement and also because of (the reluctance of) sharing a vehicle with another passenger (due to the pandemic). However, as the metros, trains and bus movement are starting in some places, we expect to see the demand rise in the near future,” Veejay Nakra, CEO, Automotive Division, Mahindra & Mahindra, told BusinessLine.

M&M has developed fitments which can be installed in existing and new vehicles to ensure social distancing while travelling, Nakra added.

The decline in three-wheeler sales is primarily driven by the sharp drop in intra-city movement caused by the restrictions imposed due to the pandemic, said Rakesh Sharma, Executive Director, Bajaj Auto. “This has also impaired the earnings potential of the drivers, as a result of which financing of new purchases has become more difficult, further compounding the problem. Having said this, there is a month-after-month recovery, albeit at a very slow rate,” said Sharma.

The domestic three-wheeler segment was already going through a subdued demand situation since H2 FY19, and faces additional challenges on account of the pandemic outbreak, said Shamsher Dewan, Vice-President, ICRA Ltd.

Patient focus

“We have to wait for the industry to return to normalcy as we cannot influence this process,” said Bajaj Auto’s Sharma, when asked how the company is dealing with the low sales in this sector. “We will continue to service our customer base and take care of our franchise. In some cities, we have been reaching out to the impacted drivers of three-wheelers through our CSR programmes,” he added.

Shruti Saboo, Associate Director, India Ratings and Research, said that since export markets have performed better than the domestic ones — where the decline in three-wheelers is much lower at around 48 per cent compared to the 85 per cent decline in the domestic market — three-wheeler companies are likely to remain focussed on increasing their exposure in exports markets.

Last-mile transport

Meanwhile, Nakra said that M&M is seeing “good demand” in the three-wheeler load segment, which is typically used for last-mile delivery. “With the beginning of the unlock phase, we see demand increasing further in the coming months, especially from the e-commerce, fruits, vegetables and grocery segments,” he explained.

But, the three-wheeler market is largely dominated by passenger carriers, which account for more than 80 per cent of the total sales volume, as pointed out by Ind-Ra’s Saboo.

“Although the goods carrier segment would fare relatively better, given demand for last-mile transportation, especially of essentials, the same would be unable to offset the sharp contraction in passenger carrier segment,” said ICRA’s Dewan.

The formulation and swift implementation of the scrappage policy, as well as the removal of controls on permit requirements on three-wheelers, are steps that the government can take to help the sector, said Sharma.

The demand outlook for the overall three-wheeler segment also remains bleak, said analysts. “While shopping malls, movie halls and markets are now open, people will continue to prefer personal mobility. Ind-Ra does not expect the demand to revive before H2 FY22,” said Saboo.

The domestic three-wheeler segment is expected to report sharp volume contraction in the current fiscal given the extremely subdued demand sentiments, with volumes expected to contract by 50-60 per cent in the current fiscal, said Dewan.

“Although growth would look optically better in the upcoming fiscal, recovery to pre-pandemic levels would be a longer-term phenomenon,” he added.

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Published on October 05, 2020
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