Automotive monthly sales are expected to continue their recovery in August 2021, as economic activities are getting back to normal. However, supply issues ahead of festivals affect stocking, especially in the passenger vehicles segment, according to Mobility Outlook channel checks.
With respect to other segments, two-wheelers and commercial vehicles to see a sequential recovery in August, while demand for tractors softens due to seasonality factors.
According to broking firm Nirmal Bang, underlying demand trends are strong, with inquiry levels witnessing a sustained pick-up across most segments. 'We expect demand recovery to accelerate in the coming months on the back of improving consumer sentiments, faster rollout of vaccination, and pick-up in economic activities,' the company said.
It also said that persistent supply chain constraints (semiconductor shortages) will affect production, eventually slowing down the recovery trajectory. In addition, a prolonged chip shortage could eventually affect stocking ahead of festivals (especially for PVs) and adversely impact demand revival (pertinent for 2Ws).
Vinkesh Gulati, President, FADA, asserted that the demand across segments is positive on a month-on-month basis. But supply issues are worrisome as dealers had stocks in August to move, but stocking for the festive season will usually be impacted.
He also pointed out that while demand is upbeat, the entry-level two-wheelers and cars are still under stress.
'The auto sales for the month of August 2021 are likely to see positive momentum for commercial vehicles and 2-wheelers on a sequential basis. Volumes for passenger vehicles may see a hit, whereas tractors may see a mixed performance in the domestic market,' said Emkay Global Financial Services.
Chips shortage is a major concern and is affecting PV production not only in India but globally. Supply-side headwinds are expected to slow down domestic PV sales to 17-20% in FY22, said broking firm Sharekhan.
In fact, due to the semiconductor shortage, there is a huge waiting period on popular models from four weeks to 48 weeks. Moreover, the discounts in August were three years low except MPVs like Triber, Go+, and Eeco, according to Jato Dynamics.
Ravi Bhatia, President and Director, Jato Dynamics, said, 'In passenger vehicles, we have seen few actions which indicate supply-side constraint. One of them is the announcements on production cuts, and there is a long waiting period on popular models. The second factor is the price rise in passenger vehicles and the focus of the industry from market share to profitability.
'Year-on-year, the registration volumes in August 2021 of passenger vehicles are 29% higher than August 2020. But on the flip side, on a month-on-month basis, there is a decline of 7%, which clearly indicates that supply is tapering off the recovery,' he added.
In terms of commercial vehicles, demand has started showing initial signs of recovery with increasing freight availability. Infrastructure demand is returning as the monsoons have weakened. Loan to Value (LTV) is stable at 85–90% as financiers are fairly aggressive in funding any demand from large fleet operators but are very stringent in funding small fleet operators.
E-commerce activity continues to support LCV demand. As a result, inventory in the system is moderately higher than normal levels of 30 days.
Emkay Global expects a 2-year domestic volume CAGR at 10% (7% MoM) for Eicher Motors-Volvo Eicher Commercial Vehicles, 5% (10% MoM) for Tata Motors, 4% (9% MoM) for Ashok Leyland and 1% (-16% MoM) for M&M.
Agriculture and commercial equipment are witnessing improvement in demand. The inventory situation is moderately better than the previous month. Therefore, recovery in CV sales is expected to improve substantially.
The government's increased outlay has further supported rural cash flows for MSP procurement (targeting farmers) and MGNREGS (targeting migrant labourers).
The tractor demand has slowed MoM due to the seasonality effect. However, commercial demand is picking up slowly. Inventory in the system is around 30 days.