Passenger vehicle sales momentum hits a speed bump due to chip shortage

Market


Automobile sales numbers for August were a mixed bag. Passenger vehicle sales growth during the month was impacted by chip shortage, despite strong demand for personal mobility. Tractor sales growth too hit a speed bump due to soft consumer sentiment, while two-wheeler sales momentum is yet to pick up. The only bright spot was the commercial vehicle segment where recovery is catching pace.

Commercial vehicle sales growth got an impetus from the opening up of the economy after the lockdowns. Better freight availability and improving freight rates also helped in the recovery. Analysts say further improvement may be seen at the end of the monsoon season. 

Tata Motors Ltd’s CV sales grew 25% month-on-month and 66% year-on-year during August. 

Though the year-on-year growth for automakers came on a high base as 2020 had seen the impact of a nationwide lockdown, when compared with 2019, the numbers were still encouraging. The two-year domestic volume CAGR (compound annual growth rate) was 11% for Eicher Motors Ltd- VECV (Volvo group JV), 10% for Tata Motors, 1% for Ashok Leyland Ltd and 22% for Mahindra and Mahindra, as per Emkay Global Financial Services Ltd. “We expect demand to improve ahead on better macros, pickup in infra spending and recovery in replacement demand,” said analysts at Emkay in their note.

Tractor sales that have seen strong growth in the last two years, however, softened with monsoon rain activity remaining lower than expected. M&M and Escorts Ltd tractor volumes declined 13% and 22% YoY respectively and were down 22% and 13% month-on-month.

The upcoming festival season, coupled with kharif sowing, which is almost at a similar level as the previous year, may aid demand in the coming months, said analysts at Motilal Oswal Financial Services Ltd.

PV sales during the month were hit due to chip shortage despite strong demand. Industry volumes increased to 250,000 units, implying a 13% CAGR over two years, suggested Emkay data. However, sequentially, volumes have declined 15%. The two-year domestic volume CAGR stood at 96% for Tata Motors, 9% for M&M and 6% for Maruti Suzuki. This shortage is likely to pose challenges for PV volume growth for most of 2021, feel analysts.

Meanwhile, the wait for two-wheeler sales recovery continues. Overall volumes in this segment declined 10% year-on-year but were up 2% month-on-month. Inventory stood at around 45–60 days, and dealers expect good retail sales during the upcoming festival season, said analysts at MOFSL. 

Rising commodity costs leading to price hikes and increasing fuel costs are adding to the cost of ownership of two-wheelers and thereby acting as headwinds for domestic demand. Export demand, however, remained strong, helping manufacturers like Bajaj Auto Ltd, TVS Motor Company Ltd that have significant dependence on exports.

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