How global mobility trends are changing the Indian landscape

Worldwide, the automotive industry is going through significant changes with four key trends dominating the landscape. These are autonomous driving, connected vehicles, local business model (including on-demand mobility) and hybrid/electric vehicles.

The two players who will influence these trends are regulators and customers as was the case in 2016 when they played an active role. The Indian automotive industry will be part of this changing arena and we are already seeing a few changes taking place even if they are on the scales of developed markets.

In the case of autonomous vehicles, global OEMs will continue their research and development in this technology, which will include forging partnerships with other players. There will be more entrants in this space who will challenge traditional players.

Autonomous vehicles will make more sense in developed markets, whose population is ageing and would prefer this option. In contrast, this mobility trend will take a much longer timeframe, say 15 to 20 years, to be adopted in India given our roads and traffic congestion. There are many challenges to overcome, including regulatory and of instilling customer confidence, before this becomes a reality in India.

The second big trend is connected vehicles, which is in the nascent stage in India even while customers are demanding more and more connectivity be it within the vehicle, vehicle-to-vehicle and vehicle-to-infrastructure. The real challenge for automakers in India will be on costs especially when buyers want connectivity but are not willing to pay for it.

We will see more and more cost-effective innovations happening in vehicle connectivity. Development will take place first within the vehicle, then to infrastructure and finally vehicle to vehicle.

Moving to the third trend,mobility-on-demand will rise given the changing preferences towards personal mobility. In developed markets with high vehicle penetration, customers may not be as inclined to buy new cars whereas in India,the potential is much larger.

On-demand mobility may impact second vehicle purchases but demand will not come down since the suppliers of these services will become key customers going forward. This explains why many OEMs are getting into alliances with these players, a trend that will continue in 2017. With congestion on the rise across many cities, regulators will promote shared mobility that will include incentives for private sharing of vehicles.

As for hybrid and electric vehicles, these are still to take off strongly in India. Given the pollution levels in cities, regulators will focus more in this area with OEMs launching more hybrid vehicles going forward. With a large part of electricity in this power-deficit country generated through coal, electric vehicles will not solve our pollution problem unless we move towards clean renewable energy.

In this backdrop, it makes more sense to move to electric two-wheelers first, followed by passenger vehicles in the long run depending how quickly the country generates clean electricity. Electric two-wheelers also do not have to contend with challenges of infrastructure like their car counterparts.

Beyond these four trends, regulators and knee-jerk reactions will continue to promote sustainable transportation in the country including driving behaviour. Apart from promoting public transport through incentives and taxing bigger vehicles in the GST regime, we will also see clear deincentivising of diesel vehicles while doling out incentives to replace old vehicles.

There will also be clear vehicle replacement policies, significant parking charges in congested cities, laws to limit multiple purchases of vehicle by one individual, dedicated parking space as a precondition to buy cars, vehicle rationing in some major cities, promoting genuine parts markers through a proper framework for safety etc. All stakeholders will have to be ready to react properly to these knee-jerk reactions.

Moving on, we will also continue to see the impact of natural calamities. OEMs and component supplier will have to factor this much more in the past in their overall business plans. In addition, automakers and dealerships will do much more in 2017 towards a digital push in areas such as attracting customers to buy vehicles, parts, rendering after market and sales services as well as getting customer feedback.

The recent move to demonetise high value currency will impact a few segments in the first quarter of 2017 especially two-wheelers, bigger SUVs and luxury vehicles. The new BS IV norms will help commercial vehicles grow in the first quarter of 2017 since customers will opt for advance buying.

New and exciting launches will continue to take place in 2017 while there will be a gradual pick up in demand from the second quarter of 2017. What will help additionally is a common ‘low’ that encompasses oil prices, inflation, interest rates and taxes to sustain the automotive industry’s growth.

The writer is Partner, Price Waterhouse

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