Electric vehicles. Commercial vehicles rev up on e-commerce boom

For the automotive sector, one segment that revved up in 2021 was the truck industry. When the year began, the CV industry was looking forward to a positive growth phase after two years of sluggishness, caused by new axle load norms, credit crisis, transition to BS-VI fuel norms and the impact of the pandemic. The first quarter of 2021 lived up to that hope.

But the second wave of Covid-19 caused some temporary disruption in mid-2021. However recovery post the second wave was stable despite high acquisition cost for buyers. As the government focused on reviving the economy with massive spends on infrastructure development, the truck industry benefited and sales started moving northwards.

“The CV segment has been showing better recovery trends than other vehicle categories in the past few months, with sustained double-digit growth. The medium and heavy commercial vehicle (M&HCV) category has been an outperformer,” said Satyakam Arya, Managing Director & CEO of Daimler India Commercial Vehicles (DICV).

“Total M&HCV volumes are expected to be in the range of 1.8-2 lakh units by the end of 2021. If the current growth momentum continues in 2022, then 2023 should be a strong year for the CV Industry,” he added.

Total medium and heavy-duty truck volumes (wholesale) stood at about 1.15 lakh units in 2020 and 2.47 lakh units in 2019, according to the Society of Indian Automobile Manufacturers (SIAM).

Key drivers

The key factors for demand revival were growth in construction spending, e-commerce industry, highway projects and the industrial sector.

“Growth in the heavy-duty segment was driven by investments in infrastructure and construction. The light and medium vehicles sales gained traction on the back of demand from the rural economy, festival season and boom in the e-commerce industry. Bus operations were the slowest to recover as work-from-home, travel restrictions and school closures continued due to the pandemic,” said a spokesperson for VE Commercial Vehicles.

E-commerce emerged as a major driver of CV demand. With consumers preferring online shopping in the wake of the pandemic, the supply movement led to huge demand for intermediate commercial vehicles (ICVs) and small commercial vehicles (SCVs).

ICVs played an important role in cargo distribution needs such as e-commerce, fruits and vegetables, parcel and logistics, poultry, white goods, industrial goods, FMCG, auto parts, beverages, etc.

The ICV boom also witnessed a customer shift to alternative fuel vehicles. With diesel prices hitting record highs, demand for CNG trucks shot up as the price gap for CNG and diesel widened significantly.

“CNG variants in the M&HCV segment have been received well by the industry and we expect the trend to continue as availability across major routes and cities improves, so will the uptake of these vehicles,” said Paritosh Gupta, Senior Analyst, Medium and Heavy Commercial Vehicle Forecasting, IHS Markit.

Though the e-commerce boom drove significant growth in the SCV segment (comprising mini-trucks and pick-ups up to 3.5 tonne gross vehicle weight), chip shortage played a spoilsport in this category.

Positive outlook

“I believe that the year 2022 will see heightened demand for heavy trucks from the infrastructure sector, mining and long-haul segments like cement and steel. E-commerce will continue to be a sunrise segment for small and intermediate commercial vehicle sales. Overall, I am very bullish for the next five years. This will be an exciting period for the CV industry,” said Arya.

Overall, with good gains from this calendar year, the outlook for 2022 remains positive and the industry is expected to repeat the strong double-digit growth. “Heavy trucks, particularly in construction applications, will continue to see good momentum heading into 2022,” said Gupta.

But there are some near term challenges too. The bus segment will take time to recover. Truck makers have been under cost pressures owing to higher prices of commodities such as steel, aluminium, copper and precious metals, in addition to production constraints due to chip shortage, particularly for small trucks. Also, the industry is wary of the looming threat of the third Covid wave.