IMPACT OF COVID-19

ON
INDIAN AUTOMATIVE INDUSTRY

Submitted By:

Lt Col G Kamesh - 29
Lt Col Sonika Arora - 32
Lt Col Pawan Joshi - 15
Cdr PR Srikant - 38
Cdr NK Rana - 43
Cdr Aarti Sharma - 40
INTRODUCTION:

Automobile industries contribute immensely to India’s economic development. In

fact, the Indian automobile industry is now focusing more on implementing new technologies
for getting optimal results. The Indian automotive industry is now aiming at self-reliance by
creating more job opportunities for Indian masses in Indian market. Moreover, Indian
government is making efforts to permit increased percentage of foreign direct investments
(FDI) to make Indian automotive industries the largest one. Also, the government is
considering introducing new policies for automotive industries that will benefit theindustry as
well as overall growth of the country in various ways.

FACTORS THAT WILL CHANGE THE AUTOMOTIVE INDUSTRIES:

There are certain factors that will influence the automotive industries in the future.
Some of them include digital technologies, changing customer preferences, electrical
vehicles, intelligent ability, and technical advancements. Technologies such as artificial
intelligence, machine learning, cloud computing, and internet of things will also play an
important role in developing new business models. Apart from that, they enable customers to
ensure a better mobility experience. In other words, technologies may impact automotive
industry units significantly that will change the markets. The introduction of electrical cars
and hybrid vehicles may transform the automobile industries in coming years.

CHANGES THAT CAN AFFECT INDIAN AUTOMOTIVE INDUSTRIES

A recent survey says that Indian automotive industries are undergoing changes at
three different levels. They include vehicle navigation, connected cars, aggregators, driving
analytics, and logistics solutions. Although leading car manufacturers follow the latest
innovations, it is only the start-ups that are using them properly. For instance, a start-up
company in Bhopal is working on developing both on-road and off-road self-driving
technologies with modern cameras. The cars allow users to drive the same in unstructured
environmental conditions to ensure high efficiency. As Indian government is giving more
importance to electrical vehicles, the production may increase in the future.

In addition, start-ups in automotive industries have to face some challenges when it

comes to innovation technologies. Some of them include product development, globalization,
disruptions, and marketing that will result in major problems. Therefore, they should give
more importance to them for ensuring a better productivity. Indian companies who joined the
bandwagon should know how to overcome problems effectively in order to achieve high
productivity. Apart from that, Indian markets will see many changes when it comes to car
designs and other things. Also, they allow the ride-share drivers to get high performance on
the roads to witness peace of mind.

IMPACT OF COVID-19 ON AUTOMATIVE INDUSTRY

Since the start of the COVID-19 pandemic, the automotive world received a series of
blows and surprises. The automotive industry has been hit by a triple whammy: factory
closures, supply chain disruption, and a collapse in demand. Lockdowns, travel restrictions
and the resulting fallout have affected the automotive sector in a one-of-a-kind fashion.
Before the pandemic, vehicle sales were rising and, in some segments, new records were set.
The forecast for auto sales in the US alone was expected to be between 16 and 17 million
units during 2020. But as March came, the all-consuming COVID-19 grinded daily activities
to a halt. With the prospect of a vaccine far away in the future, governments worldwide
imposed lockdowns and quarantine mandates. Also, resulting from the widespread inactivity,
the world economy took a hit which has been seen as the worst since the 2008 Financial
Crisis. Layoffs occurred throughout the industry. Nissan decided to shut down its Barcelona
plant after reporting the worst profit losses in a decade. This in turn drew protests from the
plant workers. Likewise, production stalled elsewhere too due to temporary shutdown of
plants. The nature of the auto industry being heavily dependent on global supply chains made
the entire scenario worse. Supply chains are often scattered across multiple regions of the
world and each country imposed their own version of COVID regulations.

IMPACT OF COVID-19 ON INDIAN AUTOMOTIVE SECTOR

The Indian automotive sector was already struggling in FY20. before the Covid-19
crisis. It saw an overall degrowth of nearly 18 per cent. This situation was worsened by the
onset of the Covid-19 pandemic and the ongoing lockdowns across India and the rest of the
world. These two years (FY20 and FY21) were challenging times for the Indian automotive
sector on account of slow economic growth, negative consumer sentiment, BS-VI transition,
changes to the axle load norms, liquidity crunch, low-capacity utilization and potential
bankruptcies. The auto industry was particularly affected by a shortage of semiconductors,
which caused several carmakers to cut production at some of their plants. The chip shortage
was caused by a surge in demand for personal computers and other consumer electronics as
many people were kept at home during Covid lockdowns.

Auto sector had been under pressure due to a mix of demand and supply factors. However,
there are also some positive outcomes, which we shall look at.

 With India’s GDP growth rate for FY21 being downgraded from 5% to 0% and later
to (-5%), the auto sector took a hit. Auto demand was highly sensitive to job creation
 and income levels and both have been impacted. CII has estimated the revenue impact
at $2 billion on a monthly basis across the auto industry in India.
 Supply chain was the worst affected. Even as China recovered, supply chain
disruptions are likely to last for some more time. The problems on the Indo-China
border at Ladakh were not helping matters. Domestic suppliers are chipping in but
they will face an inventory surplus as demand remains tepid.
 The real pain could be on the dealer end with most of them struggling with excess
inventory and lack of funding options in the post COVID-19 scenario. The BS-VI
price increases are also likely to hit auto demand.

INDIAN GOVT POLICY & INVESTMENT INITIATIVES

There are two positive developments emanating from COVID-19. The China supply
chain shock is forcing major investments in the “Make in India” initiative. The COVID-19
crisis has exposed chinks in the automobile business model and it could catalyze a big move
towards electric vehicles (EVs). That could be the big positive for auto sector. The return of
daily life and manufacturing activity to near normalcy in China and South Korea, along with
extended lockdown in India, gives hope for a U-shaped economic recovery. Studies indicate
that the Indian automotive sector will start to see recovery in the third quarter of FY22. The
industry demand to be down 15-25 per cent in FY21.

The woes of the auto industry were relieved to some extent when governments in some
countries announced recovery packages for vehicle manufacturers. By July, as restrictions
started easing, manufacturing resumed but sales did not recover to pre-COVID levels. A
notable exception, however, is China, where there has been a rapid recovery in the
automobile sector. Worldwide, consumer confidence continues to remain low from the
economic setback suffered. 
 Post–COVID-19 strategy and operational plans.

The automobile sector received cumulative equity FDI inflow of about US$ 32.84 billion
between April 2000-March 2022. The Government of India expects the automobile sector to
attract US$ 8-10 billion in local and foreign investments by 2023. In September 2021, the
Indian government issued notification regarding a PLI scheme for automobile and auto
components worth Rs. 25,938 crore (US$ 3.49 billion). The Automotive Mission Plan 2016-
26 is a mutual initiative by the Government of India and the Indian automotive industry to lay
down the roadmap for the development of the industry. The Indian automotive industry is
expected to reach US$ 300 billion by 2026. India enjoys a strong position in the global heavy
vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and
third-largest heavy trucks manufacturer in the world. India’s annual production of
automobiles in FY21 was 22.65 million vehicles, and 13 million vehicles were produced
between April-October 2021. For the calendar year (CY) 2021, all segments showed growth,
and total sales increased by 5.8% to 18.49 million units, compared to 17.47 million units in
January-December 2020. In 2021, passenger vehicles sales increased by 26.6% to 3.08
million units, up from 2.43 million units in 2020. The total number of commercial cars sold
was 677,119, up 34% from 505,102 in the previous year. Passenger vehicle sales stood at
761,124 units for Q3 FY22. Automobile exports reached 4.13 million vehicles in FY21,
growing at a CAGR of 3.47% during FY16-FY21. The Indian automotive industry is
targeting to increase export of vehicles by five times during 2016-26.

To keep up with the growing demand, several auto makers have started investing heavily
in various segments of the industry during the last few months. The industry attracted Foreign
Direct Investment equity inflow (FDI) worth US$ 30.78 billion between April 2000-
September 2021, accounting for 5.49% of the total equity FDI during the period. In Q3 FY22,
electric vehicle (EV) sales reached a new high of 5,592 units. Overall, in 2021, 329,190 EVs
were sold in India, indicating a 168% YoY growth over last year’s sales of 122,607 units. In
the year 2021, spending on electrical architecture development, such as battery development,
electrification, e-motors and power electronics, came up to Rs. 48,215 crores (US$ 6.39
billion). Investment flow into EV start-ups in 2021 touched an all-time high, increasing
nearly 255% to reach Rs. 3,307 crore (US$ 444 million). EV startups that attracted maximum
funding in 2021 were Ola Electric (US$ 253 million), Blusmart (US$ 25 million), Simple
Energy (US$ 21 million), Revolt (US$ 20 million) and Detel (US$ 20 million). The electric
vehicles industry is likely to create five crore jobs by 2030.

According to NITI Aayog and Rocky Mountain Institute (RMI), India's EV finance
industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion) by 2030. A report by India
Energy Storage Alliance estimated that the EV market in India is likely to increase at a
CAGR of 36% until 2026. In addition, projection for the EV battery market is expected to
expand at a CAGR of 30% during the same period. A cumulative investment of Rs. 12.5
trillion (US$ 180 billion) in vehicle production and charging infrastructure would be required
until 2030 to meet India’s EV ambitions. In November 2021, Indian Oil Corporation (IOC)
and two other public sector oil firms announced that they will install 22,000 EV charging
stations in India over the next 3–5 years.

The Government aims to develop India as a global manufacturing and research and
development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure
Project (NATRiP) centers as well as the National Automotive Board to act as facilitator
between the Government and the industry. Under (NATRiP), five testing and research centers
have been established in the country since 2015. Automotive Mission Plan 2016-26 is a
mutual initiative by the Government of India and Indian automotive industry to lay down the
roadmap for development of the industry. In February 2022, Mr. Nitin Gadkari, Minister of
Road Transport and Highways, revealed plans to roll out Bharat NCAP, India’s own vehicle
safety assessment program. In February 2022, 20 carmakers, including Tata Motors Ltd,
Suzuki Motor Gujarat, Mahindra and Mahindra, Hyundai and Kia India Pvt. Ltd, were chosen
to receive production-linked incentives (PLI) as part of the government's plan to increase
local vehicle manufacturing and attract new investment. The 20 automobile companies have
proposed a total investment of around Rs. 45,000 crore (US$ 5.95 billion). The Indian auto
industry is expected to record strong growth in 2022-23, post recovering from effects of
COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness
positive sales in 2022-23.
A view of Indian Automobile Sector
 In the Union Budget 2022-23, the government introduced a battery-swapping policy,
which will allow drained batteries to be swapped with charged ones at designated charging
stations, thus making EV’s more viable for potential customers. In September 2021, the
Indian government issued notification regarding a PLI scheme for automobile and auto
components worth Rs. 25,938 crore (US$ 3.49 billion). In August 2021, Prime Minister Mr.
Narendra Modi launched the Vehicle Scrappage Policy, which aims to phase out old polluting
vehicles in an environmentally-safe manner. In July 2021, India inaugurated the NATRAX,
which is Asia’s longest high-speed track and the fifth-largest in the world.

CONCLUSION

A few of the changes which were a result of the pandemic might stay. To regain
steady sales figures, manufacturers and dealers have to be creative, flexible and innovative in
their approaches. This could also be an opportunity to increase research on autonomous
vehicles as people practice social distancing. In addition, automobile industries should
improve and invest in supply chains, using machine learning tools and big data analysis
which will ensure that the efficiency of supply chains does not suffer and that total
disruptions like the one due to COVID-19 can be controlled and production can be revived
quickly.

Although R&D stalled during this period, the lessons learnt from the pandemic will
pave the way for new ideas and research that could set new standards in the industry for the
years to come. Together with integrated digitization, rising interest in electric vehicles and
work-from-home standards, the future could bring systemic changes to the existing supply
chain model and the industry as a whole.