Outlook 2022: Top 3 trends transforming Indian automotive industry

Outlook 2022: Top 3 trends transforming automotive industry

The Indian automotive industry drove into 2022 with a positive mindset in its quest to reach the pre-pandemic levels of sales volume, having built a solid foundation in 2021 despite the semiconductor shortage hampering production.

With demand still buoyant in the passenger vehicle segment amid challenges of commodity price increases, many automobile manufacturers are upbeat to embrace new technologies, especially in the electric mobility space which is expected to witness a slew of launches in both four- and two-wheeler categories in the coming year.

However, the Omicron variant of the COVID is still a concern for many automakers, as they feel that the learnings from the past two years will come in handy in carrying out business, having adopted digitisation on large scale, even if there were to be the third wave.

The automobile industry is supported by various factors such as the availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026, as per an IBEF report.

The Indian auto industry is expected to record strong growth in 2021-22, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2021-22.

Here are the top three trends the automotive industry is expected to witness this year.

1. Future of Connectivity

Last year, MG Motor India unveiled MG Astor, which is India’s first SUV with a personal AI assistant and first-in-segment Autonomous (Level 2) technology. As 4G and the internet of things (IoT) continue their growth, more connected services and features are expected in vehicles this year. With connected mobility, the cars can communicate bidirectionally with other systems outside their local area network to send digital data to enable remote diagnostics, vehicle health reports, data-only telematics, access Wi-Fi Hotspots, get turn-by-turn directions, warn of car health, and directly intervene to prevent breakdowns and also avert accidents.

The mobility landscape will fundamentally transform over the next 10 to 15 years, with ACES trends—autonomous driving, connected cars, electrified vehicles, and shared mobility—amplifying their impact. The evolving landscape presents a perfect opportunity for Indian automakers to lead the disruptive changes occurring across segments and gain a competitive advantage, according to a Mckinsey report. 

Today, only about 2 percent of new vehicles sold globally are electrified. The opportunity ahead is much larger, and the winners and losers are yet to be decided. Indian players can become homes for innovation, both domestically and in similar markets abroad, supplying complete products, aggregates, or components worldwide. In traditional micromobility segments (2W and 3W), Indian players can be the global leaders from day one. For PVs, such as cars and SUVs, and light CVs, Indian players can win by following the frugal design requirements essential for emerging markets.

2. Electric Vehicles Sales Continue to grow

The electric vehicles sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two-wheelers. According to NITI Aayog and Rocky Mountain Institute (RMI), India's EV finance industry is likely to reach Rs 3.7 lakh crore (US$ 50 billion) in 2030. A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, the projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period.

A study by CEEW Centre for Energy Finance recognised US$ 206 billion opportunities for electric vehicles in India by 2030. This will necessitate a US$ 180 billion investment in vehicle manufacturing and charging infrastructure. Between January and July 2021, EV component makers, electric commercial vehicles, and last-mile delivery companies invested a total of Rs 25,045 crore (US$ 3.67 billion) on electric vehicles. Several technologies and automotive companies have expressed interest and/or made investments into the India EV space. 

Auto companies such as Hyundai, MG Motors, Mercedes, and Tata Motors, have launched EVs in the market. A recent study conducted by Castrol found out, most of the Indian consumers would consider buying an electric vehicle by the year 2022. The study also highlighted for an average Indian consumer, the price point of Rs. 23 lakh (or US$ 31,000), a charge time of 35 minutes and a range of 401 kilometers from a single charge will be the 'tipping points' to get mainstream EV adoption.

Similarly, the government has also set up an ambitious target of having only EVs being sold in the country. As of June 2021, Rs 871 crore (US$ 117 million) has been spent under the FAME-II scheme, 87,659 electric vehicles have been supported through incentives and 6,265 electric buses have been sanctioned to various state/city transportation undertakings. 

The Ministry of Heavy Industries, Government of India, has shortlisted 11 cities in the country for the introduction of EVs in their public transport system under the FAME scheme. The first phase of the scheme was extended to March 2019 while in February 2019, the Government approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22. Under the Union Budget 2019-20, the government announced to provide an additional income tax deduction of Rs 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.

3. Direct to Consumer sales

Automotive companies have started to respond to changing customer buying behavior by piloting new online business models. However, most current initiatives are still removed from what customers expect. 

With the increased digitalisation, consumers are being used to the trends of getting goods delivered at their doorstep. While this has become mainstream for consumer goods, groceries, etc, large ticket purchases like vehicles too are likely to witness the penetration of this trend in the coming years. several mobility companies have already started offering their products through direct-to-customer to D2C business model.

The greater spike in online sales and the D2C business model is likely to witness a surge in the year 2022. This will result in more and more automobile dealerships switching to digital medium and online sales. Overall, there will be a higher penetration of the hybrid business model in automobile sales. This would eventually reduce the market share for conventional physical dealerships.

  

Growth Prospects for the Indian Auto Components Industry

High Growth Prospects for the Indian Auto Industry 

The $49 billion (FY20)  Auto Components industry in India is expected to grow to $200 billion by 2026.

Indian Auto Component industry exports, which are currently valued at $14.5 billion in FY20, are expected to grow at an annual rate of 23.9% to reach $80 billion by 2026. USA, Germany, UK, Thailand and Italy are the top destinations for exports.

Aftermarket segment which includes tyre, battery, brake parts, is expected to reach $32 billion  by 2026 from $9.8 billion  currently.

The overall Indian auto components industry, which accounts for 2.3% of India's GDP currently, is set to become the 3rd largest globally by 2025.

GROWTH DRIVERS

1. Expanding R&D hub: 8% of the country’s R&D expenditure is in the automotive sector

2. Emerging global sourcing hub: Proximity to markets such as ASEAN, Europe, Japan and Korea

3.  Cost competitive: Excise duty reduction in vehicles will spur demand

4. Sixth largest vehicles manufacturer in the world: India expected to be the third largest market by 2026

5. Favorable trade policy: 100% FDI allowed and no restrictions on import-export

6. Atmanirbhar Bharat: PLI schemes in automobile and auto component sector with financial outlay of INR 57,042 crores introduced under Atmanirbhar Bharat 3.0

Russia-Ukraine standoff : Impact on Global Shipping

With Europe on edge about a possible conflict between Ukraine and Russia, shipowners around the world are eyeing the potential disruption and resulting extended tonne-mile scenario as a spur for earnings.There are around 100,000 Russian troops massed on the border with Ukraine and frantic diplomatic efforts are ongoing to avoid an invasion.

Russia’s importance to European energy 

Russia’s importance to European energy cannot be understated. Eurostat data shows that Russia delivered 46.8% of natural gas imports to Europe during the first semester last year. Russia’s share of oil was 24.7%, ahead of Norway’s 9.1% and Kazakhstan’s 8.9%. The country is also the top supplier of coal to the continent. Russian and Ukrainian wheat exports combined, meanwhile, total about a quarter of the global trade.

Russia exported about 7.6m barrels per day of crude and refined products to the rest of the world in 2021 – three times as much as Iran. Russian oil exports represent 8% of global oil demand, a tenth of the global seaborne oil trade volume and about 7% of international tanker tonne-miles according to data from Braemar ACM. Europe currently accounts for two-thirds of Russian crude exports, half its fuel oil exports and about three-quarters of its CPP exports. Just how much of this could be redirected by Moscow to clients in Asia, led by India and China, remains to be seen.

Possible Sanctions on Russian owned fleet?

One other possible line of action that Europe and the US might take in the event of an invasion is to put sanctions on the Russian-owned fleet, something that has stymied trade for the likes of Iran and Venezuela in recent years.,

Nearly 2% of the global tanker fleet is owned or controlled by Russian interests, according to Braemar ACM. Ownership is most concentrated in the aframax fleet, with almost 8% of the global aframax fleet owned by Russian interests.

Repercussions for the LNG trades  

In terms of the repercussions for the LNG trades, analysts at broker Affinity note that the US is gearing up to offer greater volumes of gas to Europe. Likewise, China has started reselling some LNG cargoes to Europe while Australia has said it is ready to send gas shipments to Europe too.

“The huge tonne-miles involved in LNG being transported from Australia to Europe would bode well for the LNG carrier markets, in addition to volumes originating from Qatar, with the loss of Russian natural gas via pipeline,” Affinity pointed out in a recent note to clients.

Repercussions for the Dry Bulk trade

In dry bulk, grain volumes out of the Black Sea, particularly corn and wheat, may face “some headwinds” in the near term as a result of friction in the region, Braemar ACM warned in a recent note. For coal, Europe would have few options if Russia was barred. Imports of Russian steam coal into Europe, of which the majority ships to Germany, Belgium and the Netherlands, totalled 33.6m tonnes in 2021, increasing by 23% year-on-year.

“Although the EU may intend on looking elsewhere for coal in the event sanctions were put in place, it will be difficult to secure equal volumes from other sources. Supply constraints in other key suppliers in the Atlantic basin, namely Colombia and the US have contributed to an already tight coal market. Further, the ongoing Indonesian coal export ban, although easing, has put seaborne coal supply under even more pressure,” Braemar ACM pointed out, going on to warn that during periods of conflict, shipping typically sees rising insurance premiums for vessels entering disputed regions.

Other Risk elements for shipping services 

Danish container analysts at Sea-Intelligence have pointed out too that the escalating crisis carries a risk element for shipping services into the ports in Ukraine, but also has a risk element related to cyber-attacks against infrastructure – such as shipping and ports – in many NATO countries.  Finally, there is the issue of crews, with both Ukraine and Russia being among the most important sourcing nations in the world.

Increased outlays in road sector to benefit Indian Tyre Industry

Anshuman Singhania, Chairman, Automotive Tyre Manufacturers Association (ATMA) said that the increased outlays in the road sector and infrastructure development augurs well for the tyre Industry.

Expansion of National Highways by 25,000 km, is a big positive. At the same time, mobilisation of ₹20,000 crore through innovative ways of financing to complement public resources further enhances the seriousness of the intent of the Government to ensure that infra projects are completed despite challenges. Provision for PM GatiShakti cargo terminals for multimodal logistics facilities will bring in synergies and improve efficiency in the goods’ transportation, he said.

The Finance Minister has endeavoured to ensure that the economic recovery process is sustained and accelerated. Allocation of ₹10.68 lakh crore for capital expenditure (including grants) in FY23 is a quantum jump of almost 3 times the pre-pandemic level that will boost job creation and ensure long term growth of the economy. ₹1 lakh crore financial assistance to states to catalyse investments will enable broad based growth and streamline employment generation.

Extension of concessional 15 per cent income tax for new manufacturing companies will help the growth of manufacturing sector especially in view of the fact that plans for setting up new units had to be delayed or shelved in view of COVID.

Break Bulk cargo ships back in style for Coffee exporters ! Thanks to Supply chain issues

With a shipping-container shortage and supply chain issues snarling global trade, some companies are changing how they ship their goods and ditching containers all together. Sugar and rice traders told Reuters, they’re reverting back to the methods of decades ago and booking dry bulk vessels to avoid the issues.

Dry bulk cargo ships carry unpackaged raw material in the ship’s holds instead of in containers. Sugar, coffee, rice, cotton, and cocoa are some agricultural products that could be transported via dry bulk vessels. Break-bulk cargo vessels can also carry products that are sacked, like sacked sugar and rice.

Coffee in break bulk vessels - This is a first shipment in the last 20 years! 

A break-bulk vessel named Eagle has wound its way from Lampung in Sumatra, through the Mediterranean and is now headed for New Orleans. Transporting robusta coffee bags stacked in its hold to the U.S. — where roasters are starved of supply — it’s one of the first shipments of this kind in over 20 years. The ship is part of a bigger experiment in the coffee industry where producers, roasters and traders are looking to leapfrog a global container shortage that’s causing an unprecedented backlog of shipments.

“At the point when we were seeing shipments getting delayed, customers really struggling to get their supplies in time and getting access to coffee, that’s when we started to look at it,” Manish Dhawan, senior vice president for coffee at trading company Olam Food Ingredients, which chartered Eagle, said in an interview. “If you speak to some of the older traders, it was the late 80s, or perhaps the early 90s, when they last did it, so this is really a new frontier kind of thing for us as well.”  

Staggered economic restarts during the pandemic and an acceleration of online buying has created an all-out fight for freight. That’s rendered shipping containers at best expensive for moving coffee, at worst unobtainable, adding fuel to prices propelled to decade highs by a shortage in Brazil this year.

Olam expects roasters to start utilizing old-school shipping without containers more in the future. In a separate shipment on the Eagle, arabica coffee from Brazil was recently unloaded in Bremen.  Other break-bulk vessels are also setting sail from Brazil’s Santos Port, where the world’s top arabica cooperative Cooxupe shipped 108,000 bags of coffee to Europe in a ship leased by a client early in December, according to commercial director Lucio Dias. The cooperative will handle two more cargoes of coffee bags without containers in January.

“We made an experiment as some clients have been adjusting to this new shipping modality to solve shipments bottlenecks,” Dias said in a telephone interview. “But it’s a complex operation.”

Break Bulk shipping is TOUGHER

Everything is more challenging especially from handling bags when compared with containers, from the inland transportation in the origin to the reception at the destination, as only some ports have adequate equipment to lift the bags from a vessel’s hold, Dias said. Typically, coffee is either poured in bulk into special containers, or bags are stacked inside containers for easier sea and rail transportation.

Cooxupe loaded its first break-bulk vessel with bags in two days, but it took more than five as the operation was disrupted by rain, Dias said. Costs were also higher than initially estimated, leading the cooperative to renegotiate the values of new shipments with its client. 

Dias expects the logistic bottlenecks to continue in the first half of 2022 as new isolation measures are adopted by different nations to fight the spread of Covid’s omicron variant. 

Break bulk Shipping is not everyone's Cup of Coffee

Logistics are obstructed all over the world, and it will take a long time to undo this knot. Not everyone will be able to do these kinds of trades, which require a huge amount of coffee and are very capital intensive. But already market players are talking of break-bulk as a way of alleviating a bottleneck that has seen coffee pile up in Vietnam, the world’s biggest producer of robusta coffee.

“I’m quite certain that people will be looking at it, we have heard of a couple of vessels being planned, and we are evaluating our options,” said Olam’s Dhawan.

That could in turn impact prices, said Carlos Mera, Rabobank’s head of agricultural commodities research.

“The Vietnamese and Brazilian robusta crops are potentially both records, so if shipments move a bit more normally, that could bring prices down,” he said.

The Impact of China’s terrestrial AIS ban

The Impact of China’s terrestrial AIS ban

The passing of China’s terrestrial AIS ban is a huge blow to the shipping industry that tries to evolve forward in terms of shipment visibility and sustainability. With the country’s two stringent data protection laws, the Data Security Law (DSL) and Personal Information Protection Law (PIPL) which was passed in recent months, collecting Chinese onshore data needs government intervention now more than ever before! The manufacturing hub is the second-largest economy and home to six out of ten of the world’s largest shipping ports. This definitely has an impact on everyday Chinese goods that we import.

About China's Personal Information Protection Law 

Personal Information Protection Law (PIPL) was passed on November 1st and comes with some pretty strict rules about how companies process your personal data, as well as what they can do once it leaves Chinese soil. The law does not specifically state anything on the lines of shipping data but still Chinese data providers are withholding terrestrial AIS data as a precaution which was visible in the drop of these data reducing from 300,000 terrestrial positions to almost 90% from the period of Oct 28th to Nov 15th.

Data Security Law 

Under Data Security Law (DSL) which was passed on Dec 1st, the Chinese government has ordered a data classification system that dictates which information is considered important and requires closer scrutiny. While both the laws do not have any mentions on how shipping data can be processed, why do companies hesitate to provide these Chinese data points? Any breach of the above laws has penalities that could potentially cost millions of USD which both the Chinese data providers and US companies that handle these data are afraid of, until a clear vision on how these laws are implemented on shipping data.

The Impact of China’s terrestrial AIS ban and the way forward.

Not all data is good data!

It is important to understand that China did not go on a complete blackout of AIS data as the assertion from news headlines claims them to be. It can be misleading at its best. In fact, we receive AIS data for the same amount of vessels that we received even before the new law came into effect. What has changed is the precision of data that we receive.

Terrestrial vs Satellite AIS 

For maritime traffic monitoring, AIS is an essential tool that provides collision avoidance between ships by real-time tracking of their locations. The system can be used by companies in order to predict the movements of vessels with the signals that are received from AIS transponders installed onboard. What China has blocked is the data sharing of AIS reports received via terrestrial receiver stations located on-shore. Still, Satellite AIS is available for the public that can fill this missing puzzle to an extend. Terrestrial AIS reports have accurate real-time visibility for vessels that are near anchorage and ports with signals processed every 30-45 seconds against satellite signals that can range from minutes to hours depending upon the multiple macro factors.

What is the Impact of this missing data?

Port congestion: AIS data providers that solely depend on AIS information to forecast and pinpoint port congestion will have challenges in providing real-time visibility over the time at port and anchorage data. Port congestion is a dynamic dataset that needs real-time visibility backed by multiple data sources and not just solely satellite AIS, in this case.

Green shipping:  From a sustainability standpoint now that countries and major carriers are partnering to promote green shipping, the lack of such real-time data can be a hindrance to promoting these sustainable efforts.

ETA calculation: Real-time ETA calculation can be a hurdle which can have a domino effect on how the rail and truck planning happens with respect to container discharge. The current systems that are alternatively based on historical routes can’t keep up with current traffic patterns and will cost us inefficiency.

How can we overcome these Challenges?

Reducing dependency on a single source: End of the day, the problem is not whether we have terrestrial AIS data but rather it is about the inadequacy of relevant data and intelligent data crunching systems to make any data-backed decision. For an instance to calculate port congestion and ETAs, here at GoComet we use multiple data sources and variations such as geo-fence signals from ports backed by data from server integration with more than 250 carriers and 50,000 containers that are tracked on monthly basis to calculate accurate port delay and milestones till vessel discharge.

With the intelligent combination of available resources, strategic partnership with carrier lines, and proper data crunching of existing data shippers can always take actions to streamline any shipment planning from point A to point B.

Shipping Giants on a buying spree : Aim to offer total logistics

Shipping Giants on a buying spree :  Aim to offer total logistics

The pandemic and related challenges have benefitted the shipping industry. U.S Government support especially payments/cheques to U.S. households, fuelled a consumer spending spree. Freight rates have soared. In September 2021, a container from China to New York cost $22,000, eight times its 2019 price. That has boosted shipping firms’ bottom lines. Market leader Maersk’s EBITDA will nearly treble in 2021 to over $23 billion. The firm, which the market valued at $59 billion in mid-December, is likely to be carrying over $17 billion of net cash in 2022.

A Smart Move  

The normal response for CEOs like Maersk’s Soren Skou would be to buy ever bigger ships. Yet March’s blockage of the Suez Canal shows the dangers of excessive bulk. And the arrival of lots of new vessels in 3 or 4 years may create an excess supply of container space, sending freight prices downwards and also the shipping company margins.

A smarter move may be to invest in getting containers seamlessly from port to customer. Danish shipping and freight specialist DSV bought the logistics unit of Kuwait’s Agility Public Warehousing in April for $4.1 billion for just such a reason. France’s CMA CGM and Maersk both pulled similar moves in December. At $51 billion, DSV is too big even for Maersk. Switzerland’s Kuehne und Nagel, at $34 billion, would also be a challenge. However, its shares shed 25% in September and October as freight rates eased. If those trends continue, the company could come into play in 2022. U.S. land-transport specialist CH Robinson Worldwide, now worth $13 billion, would be another option.

Bringing sea and land services under one roof would allow for cost savings. It would also make it easier for operators to plot a course through future supply-chain bottlenecks and charge a premium for speedier delivery. Danish wind turbine giant Vestas Wind Systems, which has struggled to get parts throughout 2021, signed just such a deal with Maersk in November.  

 

Maersk is on a buying spree

Maersk owns more container ships and containers than anyone on earth, but it would be a mistake to think of the company as just a cargo shipping line. It’s also an airline, a trucking company, a port terminal operator, and a freight forwarder. Maersk has been steadily purchasing a piece of virtually every stage of the global supply chain as part of its ambition to become a one-stop shop for logistics.

Maersk struck a deal that offers a glimpse at the future of its business—and the future of global shipping. Starting next year, Maersk will effectively run the logistics operations of Unilever, one of the world’s largest consumer goods companies. Maersk announced in a press release that it “will be providing operational management of international ocean and air transport” for Unilever from 2022 to 2026.

International Control Tower Solution  

Come 2o22, Maersk will develop and help run a piece of in-house software, dubbed the “International Control Tower Solution,” to manage Unilever’s supply chains. “It’s a strong indicator that Maersk’s expertise extends well beyond sailing ships,” said Eytan Buchman, CMO at the cargo booking platform Freightos, who has written about Maersk’s acquisitions and expansion. “Combined with their other assets and what they’ve been building towards, it’s not a stretch to assume that this is another rung in the ladder towards full end-to-end global supply chain ownership.”

 Other developments in context

A.P. Moller-Maersk and wind turbine maker Vestas Wind Systems said on Nov. 10 that they had signed a long-term strategic partnership, including door-to-door transport from Vestas’s suppliers to its factories.

French shipping group CMA CGM said on Dec. 8 that it had agreed to pay $3 billion for the logistics arm of privately owned U.S. services firm Ingram Micro’s Commerce  & Lifecycle Services.

Maersk’s well-publicised acquisition of Senator, two 777Fs and leases on three 767-300Fs for its Star Air subsidiary, as well as its move into forwarding, could well disrupt the market. Then, of course, there is CMA CGM’s decision to set up its own airline, having acquired four A350Fs, two 777Fs and four A330Fs. As owner of Ceva Logistics, like Maersk, the line is looking to become a one-stop shop.