Cars, Coronavirus and China

Cars, Coronavirus and China

Indian automobile sector had been facing a slump before Coronavirus made matters worse. Just when automobiles saw signs of improvements after no or very less cars were sold during Covid-19 lockdown, the current Indo-China face-off has created anti-China sentiments. It must be noted that Indian automobile sector relies heavily on China for a range of components.

Crux of the Matter

Automobile Sector in India
The automobile sector in India is very important as it contributes around 7.5% to India’s GDP and 49% to the manufacturing sector. Moreover, it employs around 1 crore people in India. However, the sector is facing a crisis since last year. In August 2019, sales of passenger vehicles fell by 31.57% and passenger cars declined by almost 36%. Last fiscal, the automobile sector performed the worst in the last 22 years. Approximately 2-3 lakh job losses were registered and some companies even declared production holiday. Maruti Suzuki declared that it sold 0 cars in April.

What Could Be The Possible Reasons?
In the 2018 Sep-Dec quarter, companies had reportedly produced excessive stock anticipating heavy sales in the coming festival season. Moreover, SC’s decision to stop sales of BS4 models of the vehicle from 1st April 2020 has resulted in fewer sales of BS4 models and piling up of stock in the companies. High prices of BS6 models soured the sector’s revival hopes. The economic slowdown and fall of GDP to 5% in 2019 April-June could also be attributed to the weak performance over and above the gradual shift in demand toward car-pooling or electric cars due to environmental concerns. In addition, there was a liquidity crunch in the market caused by NBFCs, which resulted in the postponement of the customers’ decision to buy cars as NBFCs account for 1/3rd of credit sales of automobiles in rural areas and tier 3 cities. 

Impact of Covid

  • Disruption in demand and supply in the market
  • People not buying cars due to cash crunch
  • High prices of BS6 Models
  • Companies’ production lines halted due to cut in the supply of components
  • Several other sectors on which automobiles are dependent facing a slow recovery

Chinese Factor
China is one of the leading manufacturers of automobiles and its components. India is dependent on China for importing driving transmission, steering wheel, and electrical, interior and engine components. In coming times of electric cars era, dependency on China may continue as Chinese companies have leverage over producing lithium batteries.

  • Faraday Future is a technology company focused on the development of electric vehicles; It was founded by Chinese businessman Jia Yueting in 2014. Yueting also founded LeEco, a chinese video streaming and cloud service provider.
  • Maruti Udyog Limited was founded by the Government of India in 1981, only to merge with the Japanese automobile company Suzuki in October 1982. The company is headquartered at New Delhi & in May 2015 it produced its fifteen millionth vehicle in India.
  • Tesla Giga Shanghai is a factory in Shanghai, China operated by Tesla, Inc. The Shanghai regional government approved the agreement to build the production facility in July 2018, and a long-term lease was signed for about 86 hectares (210 acres) of land in October 2018. The plant began initial production of Tesla Model 3 cars in October 2019.