The commercial vehicle segment, which experienced a downturn in the two fiscal years following 2018/19, has started to gain momentum since the last fiscal year
The commercial vehicle segment, which experienced a downturn in the two fiscal years following 2018/19, has started to gain momentum since the last fiscal year
The commercial vehicle industry is expected to grow double digits this fiscal year, driven by favorable demand conditions amid accelerating economic activity, although high fuel prices and rising interest rates on vehicle loans are headwinds, according to Tata Motors executive director Girish Wagh.
The commercial vehicle segment, which peaked in 2018-19 with an industrial volume in excess of 10,000 units but experienced a downturn in the following two fiscal years, has started to gain momentum from the last fiscal year.
While it may take longer to get back to the highest volumes, in terms of payload, the industry could reach the previous peak sooner given the increasing demand for commercial vehicles (CVs) with heavier payloads.
“I think over the past year the economy has bounced back and we’ve seen the commercial vehicle market grow by around 26%. We (Tata Motors) grew 33%. We’ve done better than the industry,” said Mr Wagh PTI.
Referring to the past three years, he said, “FY19 was our peak so far when the commercial vehicle industry volume surpassed 1 million (units). After that, we had two years of downtime. FY20 was the year of preparation for the BS VI transition and FY21 was the year of COVID, if I do say so myself. In those two years, the market declined and FY21 volumes were nearly 52% of FY19 volumes.”
When asked about the overall situation in the CV industry, he replied: “We see the industry coming back. It may still take some time to reach the previous peak in terms of volume, but at the same time I think we should get there earlier in terms of payload as higher payload vehicles are being sold more today than in fiscal 2019.” This, he said, is due to the demand for resumes generated from work in infrastructure, which is being driven by the government’s budgeted allocation to the sector.
“Then a lot of work happens in the housing sector in urban areas. Overall consumption is increasing and the rural growth story is intact. All in all, I see the commercial vehicle industry should have good growth this year. ” he said.
When asked what the growth rate could be, he said: “We should see double-digit growth again this year.” As for Tata Motors, he said the goal is to outperform the industry, like it did last year year was the case.
However, Mr Wagh said it would not go entirely smoothly for the CV industry.
“Needless to say, there are headwinds. Whether it’s gasoline price inflation or rising interest rates that will raise the PMI for customers,” he said.
He was positive: “Freight rates have also strengthened in recent months. It’s a function of demand and supply and if there is a need for freight transportation then I’m sure rate utilization will increase, fleets will increase and people will come forward and buy the vehicle. So this should be a good year too as it was the last one compared to last year.” Commenting on the impact of rising commodity prices, Mr Wagh said it was unprecedented.
“The rise in steel prices as it happened is mind-boggling. In commercial vehicles, the impact of steel price increases is quite high as nearly 45% of our cost structure is directly impacted by steel. So the impact was pretty high,” he said.
Tata Motors has tried to pass on the cost increases by raising the prices of its vehicles, he said, adding: “We have made price increases almost every quarter for the past year but it has not been enough to negate the residual impact. We have continued our cost reduction efforts.”
When asked how many rounds of price hikes it would take for the company to fully offset the impact of increased raw material costs, he said: “It depends on the percentage increase you take. Ultimately, how we get our margin profile back is important. We are looking at that and we are working on a comprehensive margin improvement program.”