Automakers in fix over stopping BS-IV vehicle production

Automobile manufacturers may identify with the opening lines of  a Shakespearean tragedy: To be or not to be, as they decide the fate of BS-IV vehicle production. 

With the deadline for switching to BS-VI norms just over a year away, they are in a quandary when to stop production of BS-IV vehicles whose sale will be banned from April 1, 2020.   

Mumbai-based Mahindra & Mahindra (M&M) claims that it will take a call around January after ascertaining the demand then.

Pawan Goenka, managing director, said the situation is a ‘tricky’ one for vehicle makers as while the BS VI vehicles increases the cost of production significantly, but if the competitors still continue to sell the BS IV vehicles then they will end up losing the market share. On the other hand, if they continue producing it, there are chances of the inventories not getting sold before the deadline. “Ideally, I would like all my BS- IV inventories to get sold by the midnight of the deadline day,” Goenka said on the sidelines of commercial launch of Furio, Mahindra & Mahindra’s (M&M) new range of intermediate commercial vehicles. 

“There is expected to be some pre-buying of BS IV vehicles in the last 4-5 months before the deadline,”  said Vinod Sahay, CEO, Mahindra Truck and bus and construction equipment division, M&M. The prices of BS-VI vehicles may be higher as it is an upgraded version. 

The manufacturers of passenger vehicles (PV) are estimated to make a combined capital expenditure of Rs 35,000-40,000 crore on capacity addition, product development and localisation initiatives to comply with the regulations over next two years, according to an Icra report. The Indian auto industry is slated to jump to BS VI, skipping BS V.

Icra expects that in addition to capacity augmentation, original equipment manufacturers (OEMs) dealing in commercial vehicles would invest in multiple avenues that would help them improve their business prospects, such as new product development, addressing portfolio gaps, technology upgradation related to the next level of emission norms and sales network. 

Many OEMs are also mulling setting up their overseas assembly units, with an aim to grow their international business. Commercial vehicle manufacturers are expected to spend about Rs 5,000-6,000 crore annually, the report said.

Though a few OEMs have slowly started rolling out a few vehicles with BS-VI compatible engines, especially in the luxury segments, most other OEMs involved in mass products are scaling up their preparation for transition into the new regime. Company executives claim that getting BS-VI compatible fuel is still an issue and will not be sufficiently available before 2020. According to an estimate, the oil refineries will need to invest Rs 28,000 crore in upgrading petrol and diesel quality to meet cleaner fuel specifications by 2020. Oil refineries had previously upgraded technology and invested over Rs 55,000 crore for production and supply of BS-III/IV fuels.

The Supreme Court, in October last year, had reiterated that the sales of BS-IV complaint vehicles and their registration will not be allowed after the deadline.

According to the experts, the court’s order brought the clarity over the industry transition to the new regime.  In a similar situation during the transition to the BS-IV regime from BS III, the Supreme Court had banned sale of vehicles not compliant with BS-IV norms from April 1, 2017.

The apex court order had a huge impact on the finances of the OEMs, as the industry collectively is believed to have sustained losses of around Rs 12,000 crore. While the OEMs tried saving some money by offering huge discounts on the last two days of the deadline, a significant number of vehicles became redundant, which were later either upgraded to BS IV at a heavy investment or were exported to other countries with similar levels of pollution regulations.

According to the industry insiders, despite subdued growth during the just concluded festive season, the demand remains positive in the upcoming year, as a result of which a spate of launches and refresher products have already been lined up. “The launches will happen in order to push up the sales from the new year start,” a Mumbai-based analyst with a global consultancy group said.

SHIFTING GEARS

• There is expected to be some pre-buying of BS IV vehicles in the last 4-5 months before the deadline
   
• Automakers are estimated to make a combined capital expenditure of Rs 35,000-40,000 crore for upgrading to BS VI