India’s auto industry is going through one of the worst slowdowns in recent times. Wholesale figures for internal combustion engine-powered vehicles have been falling for more than a year now due to a raft of reasons like muted consumer sentiment caused by the shift to Bharat Stage VI emission standard and India’s push for electric mobility.
Electrical and electronic goods maker Mitsubishi Electric, which makes parts for all major carmakers like including Maruti Suzuki, Toyota, and Honda, has had a tough quarter. In an interview with Fortune India, Rajeev Sharma, corporate services and strategic planning head, Mitsubishi Electric India, took stock of the situation and shared the company’s outlook for the industry. He says India is much better compared to the US and Europe, for “in India, we still see double-digit growth”. He said the company hopes to make up for the September quarter by year-end. “We expect that after April it [the industry] should again come back on track,” said Sharma.
How well are you prepared for the shift to electric vehicles (EVs)?
We supply parts like electronic power steering, alternator, starter, etc. The shift is basically happening because of the economy. If you see India or any other country, they are highly dependent on the import of petroleum and there is an account deficit in terms of import-export. There is a huge necessity that we need to find an alternative source of fuel which is not so easily possible right now. So, the nearest possible solution is to get into EV. Even though EV is not a very clean fuel but actually you shift the polluting units. In petroleum-based engines, you have pollution within the city whereas, in electric, it will move out of the city as the electric will come from the powerplants which will charge the machines. The biggest problem in EV is how to shift. And who will shift. The traditional automobile player doesn’t have the technology. They are still doing the R&D. They have a bigger bottleneck when they have to develop the product from scratch. But now slowly things are moving. We are preparing EV components. Right now we supply to all the Japanese automakers in India and are trying to help companies like Tata and Mahindra to develop their EVs.
You are not an engine-agnostic company. That means EV is going to affect your business in a big way?
EV will have only 10% parts of the traditional automobile parts. So, our parts will also go down. Right now we don't know what will be the value proposition. Some parts like electronic power steering will be relevant but others like alternator, starters will change. The biggest problem in EV today is how many kilometers you can run on a single charge and the charging time. In Japan, they are developing stations where you can go and replace your batteries also. It’s difficult to say if it’s going to impact in a positive manner or a negative manner because we being an electrical company, maybe it will be a game changer for us also. We're a component supplier currently and maybe for EVs, we can become the main player. We are also working on the charging stations through our semiconductor products and helping the charging players to reduce time.
The auto slowdown has affected dealers and part makers more. Do you agree?
Yes, we have gotten impacted because our biggest customer for automotive equipment is Maruti. Yes, the duration of production has gone down. We have got impacted as well. It must be in the range of 15-20% in the last one year. But in terms of issues of labour, we are not impacted. Whenever there are more production lines, we hire more temporary staff.
Any recovery in sight?
We expect that after April it should again come back on track because right now both the dealer and the buyer, everybody is waiting and watching. Nobody wants to build up the inventory. Till now there was no such thing. Now if there's a cut-off of March 2020, then their inventory might get obsolete. Almost 80% of automobile purchases are done through financing. And today, the NBFCs are suffering and because of that there are no new loans. One is liquidity, second is regulation, and third is the apprehension about EV. This time the slowdown has happened because the first-time buyer, which are the real economy movers, are confused whether to go with BS VI or BS IV standard vehicles.
Would goods and services tax (GST) cuts help the automotive sector?
It depends. The government will take money in some way or the other. If they start giving GST cuts, then they’ll increase the land cost. So, your investment will increase. So, cutting the GST is a very short-term measure. This might push demand, but eventually the government will see that collection from the automobile sector is going down. So, somewhere they’ll ask more money either in the form of land, or tax to the company.
How bad is the slowdown as compared to your other markets globally?
India is still much better. We are at least seeing some growth here. Like if we talk about China or Europe, or the U.S., the growth is as good as zero. As it is, these markets are very saturated and the growth is in single-digit but in India, we still see double-digit growth. This quarter we have been slightly more impacted but by year end, we expect to go back to our original growth.