BUDGET 2019 – Auto industry to change fast

With the increase in excise duty on petrol and diesel and the GST cut on Electric Vehicles will is going to be a big blow to the Auto sector, which is already reeling under huge pressure of declining sales.

The message is getting out clear that, manufacturers have to speed up with EV launches, else they perish. Tight cash flows in the market due to closing of funding tap of the NBFC’s, has impacted Auto sales to a very large extent.

In the last 3 months, almost all the companies in this space have registered continuous decline in sales numbers. Many of the big names have shut down their facilities for short period to adjust for the inventory build up at the distributor level.

Now the next step will be offering discounts to clear off inventories. It will be a better decision for the manufacturers which will reduce cost of funding these unsold inventory. Buyers will enjoy getting their favorite vehicles at a discount.

Yet, as the message from the government is getting more clear about the fast pace expectation to switch to EV’s. Buyers will prefer to delay their purchases, though not on a big scale, it will impact sales.

The biggest threat will be to Auto anciliary businesses. EV’s don’t require all the parts that are presently used in an automobile. Either they fast pace their production to include products required for EV’s or perish.

Auto stocks are already down to their bottoms, now it will go down even further. If you hold any auto stocks in your portfolio or find exposure to auto in your Mutual Fund portfolio, take exit. It will deteriorate further.

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Ramesh Sigamani

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