This month we have Dr. Manoj Mishra, our Auto & Auto ancillary Industry expert, who comes with over 3 decades of experience in the Auto & Auto ancillary sector. Dr. Mishra, an experienced angel investor, shares his thoughts on the Indian Auto sector.

Q. How can Indian auto manufacturers better compete with their Global Counterparts? Do you see them replicating the success of their Japanese and Korean Counterparts here?

Dr. Manoj Mishra: Old generation Indian automotive manufacturers like Hindustan Motors and Premium Auto lost out to Maruti and Hyundai due to low tech products, product quality, service and price. In the new age competition, MUL (Maruti), HMI (Hyundai) and even KMI (KIA Motors) are establishing themselves very well due to their product quality, price, service and countrywide distribution. Additionally, they are all catering to the entire demographic of the country, taking into consideration geography, income class, age groups, Male/Female etc. They have also cracked the code of large Indian family sizes, the aspirational product appeal of a car and products at multiple price points with high tech globally competitive products.

Indian OEMs like Tata and Mahindra are also fighting the battle well. Mahindra has been widely successful in the higher-end SUV space (8 to 25 lac price range) and Semi-Urban /rugged niche vehicles like Bolero and Scorpio but they are losing out on the cars segment. Tata, post Jaguar’s involvement in product design and technology infusion, seems to have cracked the code with multiple product launches in different price segments and is having a very good countrywide distribution and service. It is also doing very well in Electric Vehicles. Their products are very contemporary in style and technology. They are evolving fast and may do well. They, however, need to build scale to reach optimum levels of success. A Car being an aspirational product, fighting solely on price may not be successful, it would merely be a repeat of the Nano fiasco. It is the winning combination of multiple products that cater to all segments, price, quality, style, options and features that will govern the race.

Q: With Ford following in the footsteps of Chevrolet to exit it's India operations, why do you think most American companies fail to succeed in India?

Dr. Manoj Mishra: Success of the automotive market in India or anywhere is a function of scale, product technology, features, options and distribution/service country wide. Ford, Chevrolet and even many European counterparts like Fiat and Peugeot lost out on the above points. Bringing the right product at the right time and at the right price for various customer segments was a challenge for all these OEMs. They kept a thin product range and did not expand their range and scale. There were attempts on a Ford tie-up with Mahindra but this did not result in any improvement. The first attempt failed due to a low product range and in the second attempt of a Mahindra-Ford Joint Venture, it did not click due to there being no strong management team to steer the Joint venture in the absence of veteran Pawan Goenka. The Mahindra team was also, at the same time, struggling to make its own mark and maintain market share for its own products. Mahindra has also burnt its fingers with SsangYong, Korea and may not like to repeat the past by managing struggling entities but improve its own market share.

Q: Demand for Electric Vehicles has been rising exponentially in India. How are traditional auto ancillary units aiming to adapt to this change and how well equipped are they to do the same?

Dr. Manoj Mishra: Electric Vehicles have started growing in a few vehicle segments due to government incentives, especially in the 2-wheeler and 3-Wheeler segments. There is still a long way to go for cars and more for personal vehicles. Green shoots are visible in the ride-sharing segments as the running km and availability of dedicated charging stations for rental companies make the operational economics more viable. Still, for commercial vehicles and personal cars, it would take over 5 years for 2 and 3-Wheeler sales to become 10% to 15% in the next 5 years.

Those auto ancillaries which are engaged in Internal combustion engine and Transmission parts have realised this and are frantically diversifying to electric vehicle products like motor, reduction gearbox and mechatronics parts to protect their business; many other products like BMS, controllers, sensors and actuators are also going to be of big use in not only electric vehicles but also in advanced vehicle features like ADAS, Electronic fuel Ignition, Emission sensors, IOT and telematics solution, safety and comfort functions like anti-collision, rain detection, lane departure control, drowsiness control etc. The need for ECU's and micromotors is also increasing.

Electric vehicles and ICE will co-exist for the next 20 years with the share of market shifting gradually towards Electric vehicles till it becomes price competitive and their servicing, charging points, range, speed and other features are made ubiquitous. India needs Tesla within a range of Rs 5 to 15 lac for mass adoption and the same goes for the 2-Wheeler segment - a 2-Wheeler costing Rs 1 to 1.5 lacs with ill equipped charging infrastructure and without government subsidies, may not be a case for mass proliferation.

Q: Is the PLI (Production Linked Incentive) scheme enough to help accelerate growth for the Auto & Auto Ancillary sector, since it has been hit hard by rising input costs, raw material shortages, logistics problems, lockdowns etc, or should the government do more?

Dr. Manoj Mishra: The PLI scheme, recently announced by the government in mid-September ’21, offers a Rs.26,000 Crore incentive package for the automotive and drone sector. It is a step in the right direction from the perspective of promoting new technology and carbon reduction. It supports Hydrogen and Fuel cells, Hybrid fuels, Cell chemistry, Vehicles Exhaust treatment, EV and Electronification through Battery, ECU, BMS and Chips manufacturing as well as many other advanced products. The promotion of these high-end and advanced technologies are good initiatives to protect and prepare India for the future. The government has offered investment incentives and has championed the vehicle and component manufacturers.

The covid-hit auto sector, which struggled for around 2 years, has again been struck with a global shortage of semi-conductor chips, a situation which is going to last for another 12 to 18 months before it revives completely. In light of this, the industry was expecting some relief measures so that companies might invest in and prepare for challenges of EV, Safety, Emission and technological advancement but no relief has been offered on these fronts. The investment sentiments are low due to the above challenges and the government needs to rethink and add some more frills to its existing offerings so that companies can combat these challenges prepare for the near and long term future.