The constant increase in the cost of two-wheelers are likely to remain unabated as new government regulations are set to kick in, putting further pressure on consumer demand for motorcycles and scooters. 

As against the two-stage implementation of On-Board Diagnostics Stage 2 (OBD 2), the government has gone for a single-stage implementation of the programme. The two and three-wheeler companies will have to test, validate and make their entire range conform to the new regulations much before the deadline.

While OBD 2A was to be implemented from April 1, 2023, OBD 2B was set for April 1, 2025. However, as per the new order, both the stages shall get implemented effective April 1, 2023.

“In November 2021, the Centre had decided to advance the implementation of the OBD 2 for two-and three-wheelers as a single stage instead of the previously agreed introduction in two stages. Effectively, the norms were to be implemented ahead of the Euro 5 OBD 2B standards, but with no time to achieve mature calibration,” noted Bajaj Auto, in its latest annual report.

OBD standards

OBD 2 is a crucial regulatory norm that calls for monitoring catalytic convertors, misfire detection and oxygen sensor deterioration. OBD 1 got implemented on April 1, 2020. OBD 2B involves CAT monitoring — the calibration of which needs over two years of durability testing and monitoring after OBD 2A implementation.

The auto industry’s apex lobby body, the Society of Indian Automobile Manufacturers (SIAM) has represented the two-and three-wheeler industry and sought implementation of OBD in two stages as previously planned.

“Bajaj Auto’s R&D is taking no risks. It has drastically re-allocated its resources and program priorities to tool up and calibrate the huge range of two-and three-wheelers that the company manufactures. This involves a task of re-homologation of its entire range,” Bajaj Auto added.

Over the past two years, two-wheeler prices have shot up by up to 22 per cent due to high commodity and input prices, including that of semiconductors and regulatory changes. From June 1, third-party insurance premium has been hiked for two-wheelers having engines bigger than 150cc.

Poor demand sentiment

Poor demand sentiment due to the constant hike in prices saw the two-wheeler industry post their third consecutive yearly fall in sales during FY22. At just 13.46 million clocked last year, two-wheeler sales were the lowest in ten years and far from the pre-Covid period, as per the SIAM data.

“Demand growth is highly dependent on improvement in consumer sentiment. The improvement in sentiment is yet to fully recover to pre-Covid levels and could be impacted by inflation, especially energy and food-led and any significant adverse development in Covid,” noted TVS Motor Company in its annual report.

Cost escalation and its impact

More than half of the two-wheeler market is composed of the budget motorcycle segment having engines below 125cc. This segment is heavily dependent on rural, price-sensitive markets like Bihar, Haryana, West Bengal, Uttar Pradesh, Madhya Pradesh and Rajasthan.

“Any further price increases due to additional commodity cost escalation could adversely impact demand. The low and mid-segment of the market have low headroom for further price increases. Raw material timely availability, shortages of semiconductor and some EV specific components could lead to impacted financial performance,” TVS Motor warned further. 

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