Auto volumes may skid as key markets turn pandemic epicentres

Amid talks of a lockdown extension, the high number of Covid-19 cases in ‘key’ States threatens to hurt auto sales for a sustained period.

States such as Maharashtra, Tamil Nadu, Delhi, Kerala, Telangana, Andhra Pradesh, Rajasthan and Uttar Pradesh account for about half the passenger vehicles (PV), two-wheeler and commercial vehicle (CV) volumes in the country. Maharashtra, for instance, accounts for about 11 per cent of PV volumes in India. Its share of two-wheelers and CVs is 10 per cent and 14.5 per cent, respectively. Tamil Nadu accounts for 7 per cent each of two-wheeler and CV volumes, and 5.4 per cent of PVs.

Similarly, Delhi’s share in the three auto categories is in the range of 3-6 per cent. The two-wheeler market in Uttar Pradesh is sizeable, at 15 per cent of the country’s, while its PV and CV markets are at about 10 per cent each, according to Dolat Capital.

Kerala accounts for about 5 per cent of the PV market, while Telangana, Rajasthan and Andhra Pradesh also hold market shares in the range of 3-7 per cent in PVs, CVs and two-wheelers.

Spike in number of cases

But these eight States account for about 75 per cent of Covid-19 cases in India as of now. Barring Kerala, they have been seeing a spike in the number of cases over the past few days. They are becoming the epicentres of the pandemic, and are likely to face a longer lockdown, according to analysts at Dolat Capital.

While some of them have already indicated they may extend the lockdown beyond the present 21 days, the others are evaluating various options.

Though automobile companies are bracing for a slowdown in view of Covid-19 and the consequent shutdowns and drop in economic activity, the increasing number of cases in major markets is cause for worry. Not only will the outbreak impact the income levels in those States, but also hit buyer sentiments for a longer period.

Newcomers worst hit

The new entrants into the market will particularly see some impact in the near term. They had been generating a good portion of their sales from the top cities pre-pandemic. Now, the lockdown and weak sentiments may pose challenges, according to an auto analyst at a leading brokerage firm.

It is still not clear how the recovery will vary by region and by State. But, if the lockdown gets extended in the large cities, automakers may have to depend on rural markets for volumes.

“Considering the current conditions, we believe that the impact on a few categories, such as CVs, tractors and premium vehicles, is likely to last longer than the lockdown period. Some other categories, such as the economy and executive two-wheelers, entry-level cars, tyres and batteries, should experience a revival in the second half of the current fiscal, said Dolat Capital analysts.

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