After growing at high double-digit figures for two consecutive years, the domestic three-wheeler industry has hit a roadblock due to a waning base effect and the non-banking financial institution crisis impacting financing avenues. India is one of the largest markets for three-wheelers globally with annual volumes of more than 6 lakh units.
The industry had grown by 24 per cent and 37 per cent respectively during FY18 and H1 FY19, supported primarily by a relaxation of the permit regime in certain key states. However, the segment has declined since the latter half of FY2019. According to the Society of Indian Automobile Manufacturers (SIAM), total domestic three-wheeler sales declined 7.35 per cent in the first quarter of FY20.
“The abolition of permit regime in large three-wheeler markets like Maharashtra and Gujarat along with issuance of fresh permits in states like Delhi, Karnataka, Andhra Pradesh and Telangana had extended the much-needed impetus to the domestic three-wheeler volume in FY2018 and H1 FY2019. However, the segment has declined since the latter half of FY2019,” said Sruthi Thomas, senior analyst, ICRA Ratings.
A shift towards electric mobility will further impact the dynamics of the industry over the medium term, said ICRA. Currently, although electric three-wheelers are priced at a significant premium as compared to their internal combustion engine counterparts (priced around 1.5 times higher before subsidy and 1.1 times more post-subsidy), they offer significant savings in terms of operating costs, it said.
According to its estimates, the running cost for an electric three-wheeler is only Rs 0.4 per kilometer compared to Rs 2.1-2.3 per kilometer for the conventional ICE-based three-wheelers. Accordingly, ICRA expects incentives offered by the government, coupled with the favorable operating economics of electric three-wheelers to be the key drivers for the mass adoption of electric 3Ws, besides regulatory mandates.
The three-wheeler market continues to be dominated by a few large players, although unorganised players also co-exist. The industry is fairly consolidated with the top three players accounting for more than 90 per cent of sales.
Similarly, export of three-wheelers has also declined in recent months, with volumes expanding by 40 per cent and 49 per cent in FY18 and FY19 respectively. This was largely on the back of economic recovery in key export markets of Africa, even as volumes came under pressure in export markets in 2019.