The Indian two-wheeler industry may take as long as five years to reach the record levels it did before the Covid-19 pandemic struck, says, Atsushi Ogata, president, chief executive officer, and managing director, Honda Motorcycles and Scooters India (HMSI). 

"Five years ago, the industry recorded an all-time high of more than 20 million units. Now the industry is somewhere around 16 million units. Our internal estimates suggest that after five years of downtrend, the industry will take another five years—by FY28—to reach that level again," says Ogata, on the sidelines of the unveiling of the Activa 2023—HMSI's first on-board diagnostics (OBD2) compliant two-wheeler, ahead of the April 2023 deadline of vehicles to comply with the norms. According to Ogata, the entire fleet of the company will be OBD2-compliant by June 2023.

Ogata's comments imply that the two-wheeler industry has virtually been set back by a decade. He also says that the government should launch some incentives—such as in the GST, which currently battery electric two-wheelers enjoy. "The GST reduction is a very good advantage for EVs. We don’t have it," he adds. HMSI, through the Society of Indian Automobile Manufacturers (SIAM), is in talks with the government to possibly get some support to the industry—either by introducing biofuels, flex-fuel, or giving the rural, agrarian economy a fillip. However, what HMSI particularly wishes for is some support in curbing fuel prices. According to the ratings agency ICRA, the pandemic-induced income uncertainty, coupled with a steep rise in the cost of ownership constrained demand over FY2020-2022.

ICRA pegs the two-wheeler segment to register a growth of 9% to 12% in FY2023, and between 6% to 9% in FY2024. "The two-wheeler industry is expected to record moderate growth in volumes aided by a low base," says Shamsher Dewan, senior vice president and group head, corporate ratings, ICRA. Ogata also concedes that HMSI is plagued by over-capacity, where it has a peak production capacity of 5.8 million when it could only sell 3.9 million units in FY2022. "Nobody expected the pandemic. It came like an accident because the pandemic started in India around the same time as the transition from BS-IV to BS-VI. The next accident is the unexpected increase in commodity prices. We were forced to increase prices to mitigate the impact of the unexpected spike. There is a huge gap between the price of the Activa five years ago and now," he recounts.

There has been a price increase of about 30% in the entry-segment two-wheeler prices over the past three years. "Such kind of price increase; the impact of the pandemic in front of the rural customers is huge, compared to the urban customers. So, there has been a significant decrease in demand," says Ogata. The pace of recovery in the rural economy remains uncertain, as delayed kharif harvest may impact rural incomes. However, rabi sowing acreage remains a positive. Targeted for the rural markets, HMSI will also introduce a 100-cc motorcycle in March this year, and the pricing, as Ogata claims, will "positively shock" both the consumers and the industry observers.

While demand has been subdued, Ogata still sees a huge potential in demand. "Potential of demand is the highest in India, even after five years, because there are customers who want to own a two-wheeler, but do not have enough money because they belong to the rural economy," he says. Therefore, this has led to HMSI launching a low-end motorcycle. 

Although softening in core commodity prices is expected to help limit further two-wheeler price hikes—and improving two-wheeler financing penetration would help mitigate the impact of higher lending rates—ICRA believes that two-wheeler volumes will register a moderate growth on a truncated base, and recovery to FY2019 highs at least two to three years away.

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