India’s third-largest carmaker, Tata Motors Passenger Vehicles Ltd, has flagged continued cost pressures and uncertainty ahead of the festive season, after implementing price hikes this month along with the country’s largest carmaker, Maruti Suzuki, and fourth-largest Hyundai Motor India. The developments indicate a squeeze on carmakers as the West Asia war offers no respite.
Speaking ahead of the launch of the company’s latest upgraded sedan Tata Aeris, Tata Motors PV managing director and chief executive Shailesh Chandra said only a limited part of the cost increase has been passed on to consumers so far, with more hikes likely over the next few months to offset the impact triggered by the West Asia war, which continues to affect supply chains and logistics costs across the world.
Talks about price hikes and cost pressure become crucial as the country enters the in the October to December quarter, considered the best period for sales of automobiles and other consumer goods.
Moreover, passenger vehicle sales in the country have been on a roll owing to the reduction in GST, low interest rates and a cut to personal income tax last year, leading to higher income in people’s hands.
“…the concern for us as a business is that it is not possible to pass on these increases to the market at the speed at which the prices (of commodities) have increased,” Chandra said, highlighting that the industry is facing this issue.
“It creates immense margin pressure and immense effort from a cost reduction perspective. I mean there is definitely an institutionalized process to reduce your costs. But it works at a certain time period.The time period needed is very high,” Chandra noted.
Since the start of the West Asia war in February, several commodities have seen a surge in prices, including , platinum group metals, and steel, among others.
Tata Motors PV’s top executive’s comments align with the commentary shared by Maruti Suzuki earlier this month.
“For the past few months, the Company has been making continuous efforts to mitigate the cost impact to the extent possible through cost reduction measures,” Maruti said in a 7 September statement.
“However, with inflationary burdens at elevated levels and the adverse cost environment enduring, the company is constrained to pass on a portion of the increased costs to the market, while continuing to ensure that the impact on customers is kept to the minimum extent possible,” the company added.
Society of Indian Automobile Manufacturers (SIAM) data shows that passenger vehicle sales in the domestic market between April and August this financial year surged by 28% to 2.04 million units, with the industry expecting total sales to cross 5 million by the end of this fiscal year.
According to Mint‘s review of top carmakers’ announcements, carmakers have raised prices multiple times this year amid sustained cost pressures. Maruti Suzuki has increased prices three times, in June and August by , followed by a hike of up to ₹20,000 on select models in September.
Hyundai Motor India has raised prices three times, by about 0.6% in January, up to ₹12,800 from June and up to 1% from September. has raised prices thrice, by a weighted average 0.5% for ICE models in April, up to 1.5% across its portfolio in July and by up to ₹25,000 in September. Mahindra & Mahindra raised prices by up to 2.5% in April and by an average 2.7% for SUVs in July.
While multiple price hikes raise concerns about wiping out the GST advantage of a 10% tax cut, Chandra noted that price hikes have been behind.
“The price increase has not been to the extent of the reduction that we have seen on the GST side. Still, there is a significant detriment. That is why the demand is holding at this level,” Chandra said.
Analysts have already started flagging the possibility of moderating growth in car sales owing to the impact of a higher base last year, a shortfall in monsoon and price increases by companies.
“The key downside risks are moderation in rural demand, as certain states are logging a rainfall deficit, and demand impact due to price increases that are being implemented across categories,” analysts at Nuvama Institutional Equities wrote in a 9 September note.
