After witnessing two years of positive growth, three-wheeler volumes are expected to report negative growth this year. The reasons being liquidity issue, emission norms and electrification of vehicles, among other things. Even exports are likely to be under pressure due to developments in Egypt, which is the second largest market for India.
India is one of the largest markets for three-wheelers globally with annual volumes of more than 600,000 units. The industry is fairly consolidated, with the top three players accounting for more than 90 per cent of sales.
The growth in the domestic three-wheeler industry has hit a roadblock after a dream run in FY2018 and the first half of FY2019, due to the base effect catching up and the non-banking financial company (NBFC) crisis impacting the financing avenues available to the segment. The growth in 2017-18 and 2018-19 was aided by relaxation of the permit regime in certain key states in India.
Sruthi Thomas, senior analyst, ICRA Ratings, said that the abolition of permit regime in large three-wheeler markets such as Maharashtra and Gujarat, along with issuance of fresh permits in states such as Delhi, Karnataka, Andhra Pradesh and Telangana, had extended the much-needed impetus to the domestic three-wheeler volumes in FY2018 and H1 FY2019. However, the segment has declined since the latter half of FY2019, impacted primarily by the high base and the liquidity constraints in the economy, which has blocked potential financing avenues available for three-wheeler buyers.
Total production in the first three months of this year was down by around 12 per cent, in which the domestic segment was down by around seven per cent and exports were down slightly more than 12 per cent. BS-VI implementation might have an impact on the segment next year also, said Shamsher Dewan, VP and sector head - corporate ratings, ICRA Ltd.
TVS Motor, one of the major manufacturers of three-wheelers, has said that the revenue line in the segment was protected mainly by international business, in the last financial year. The three-wheeler sales during the quarter ended June 2019 grew to 40,000 from around 35,000 during the same period last year. The company is able to look at many markets for expansion and growth, there are some new markets where the customers are starting to like its products and, overall, three-wheelers have been growing very well, said K N Radhakrishnan, director and chief executive officer of TVS Motor. In all international markets, including African, Latin American and Asian markets, the company has done better during this year, he added.
Going forward, the government's electrification plan, especially for the commercial fleet, would impact the dynamics in the domestic three-wheeler market over the medium-term.
At present, electric three-wheelers are priced at a significant premium as compared to their internal combustion engine (ICE) counterparts -- around 1.5x prior to subsidy and 1.1x post subsidy. However, they offer significant savings in terms of operating costs.
ICRA estimates show that the running cost for an electric three-wheeler is only Rs 0.4/km as compared to Rs 2.1-2.3/km for the conventional ICE-based three-wheelers. Hence, with the subsidy offered under the FAME scheme, which brings down the capital costs for buyers, and operational costs savings, electric three-wheelers are expected to breakeven in eight months as against 9-10 months for diesel three-wheelers.
Over the years, the contribution from exports has been increasing mainly due to African and Asian markets, which led to a compound annual growth rate (CAGR) of 14 per cent. At present, it accounts for 45 per cent of the total industry-mix, according to ICRA numbers.
During the past two financial years, exports rose by 40 per cent and 49 per cent, respectively, due to economic recovery in key export markets in Africa. However, with adverse legislative developments in Egypt, which is currently the second-largest market for three-wheeler exports from India, the volumes have come under pressure in the current financial year, contracting by 13 per cent during Q1 FY2020.
With annual sales of around 0.3 million units, Africa is the largest export market for Indian three-wheeler OEMs. However, the market remains exposed to fluctuations, with volatility in forex rates and economic downturns impacting the demand. Nigeria and Egypt are the two largest markets in the region. As the Egyptian government has been contemplating licensing of three-wheelers and banning their free import because of safety concerns and increasing crime rates, three-wheeler exports have been impacted during the current financial year. Three-wheeler OEMs are expected to offset the impact of lower demand from Egypt through increased focus on markets in Asia and Latin America such as Bangladesh, Cambodia, Peru and Iraq.
Icra expects the three-wheeler segment to report negative sales.