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The latest carmaker to enter India is “nervous” about the market right now

REUTERS/Anushree Fadnavis
Navigating through the pandemic.
  • Niharika Sharma
By Niharika Sharma

Reporter

Published

Despite the Covid-triggered economic slump hitting India’s automobile industry, MG Motor clocked its best-ever sales in the country in March this year. But as the deadly second wave of Covid-19 wrecks havoc, the British arm of the Chinese carmaker SAIC Motor is beginning to feel “nervous.”

MG Motor entered India with much fanfare in June 2019. Less than a year later, in March 2020, India went into one of the world’s strictest Covid-19 lockdowns, which lasted for more than two months. In April 2020, India witnessed zero car sales, and the recovery since then has been slow. This slow recovery now stands threatened by the second wave of the pandemic.

“We don’t know how long this situation that has disrupted the industry will last,” says Rajeev Chaba, president and managing director of MG Motor India. “I’m nervous.”

Its newest entrant, MG Motor, still has a pretty small presence in India’s over $70 billion (Rs5.15 lakh crore) four-wheeler market. At present, it sells four sports utility vehicle (SUV) models in the country: MG Hector, Hector plus, ZS EV, and Gloster, all priced in the premium category. In March, it sold 5,528 units.

Below are edited excerpts from Chaba’s interview with Quartz where he talks about what’s working for his company and how the carmaker is planning to navigate the current situation:

How has your journey in India been so far?

Phase one of our journey has been satisfying. The response has been better than our expectations. We are completing almost two years of production and still, we have more orders than what we can execute. But we need to be on our toes as we have to keep ensuring that people at dealerships are trained and customers’ dissatisfaction should be addressed immediately. It’s very challenging to maintain this kind of standard.

How has the Covid-19 pandemic affected your company’s performance in India?

When the lockdown was announced last year in March, we made it clear to our employees that we don’t know how the situation would shape up but we assured them that there would not be a single layoff. We have around 1,800 directly employed staff and the number of contract workers is around 2,500.

Despite the pandemic-triggered slump, you recorded the highest monthly sales in March. What do you think worked for you?

To be honest, the whole industry has done well. Since there was pent-up demand and consumers were buying more cars because of various reasons. Within the industry, the SUV segment is doing well. And as luck would have it, all our models available in India right now are SUVs. So we happen to be sitting at the sweet spot.

We are now in the middle of a deadly second wave of Covid-19, what do you think will happen to this growth? 

I’m nervous. March has been good, but currently, the absolute industry numbers are lower than five years ago. The industry has to catch up to its peak. Also, input costs have gone up like crazy. We are hearing some abnormal and unusual increases in the rates of everything right from freight to steel and copper. The industry is also facing acute shortages of chips, and no one knows how long it will last.

Then there is uncertainty around Covid.  Right now, it’s worse than the first wave. Lockdowns are happening in various states and a lot of containment zones are coming up, which will definitely disrupt production. Nobody knows what will happen after two or three months. Maybe a third wave will come. So I think we need to remain very, very cautious still.

I am nervous. I’m not very optimistic about general things right now. So I’ll be cautious.

Do you think the current crisis will lead to any new trends in the automobile industry?

I believe that Covid will lead to e-commerce activity picking up in the auto sector. The option to shop online is going to accelerate buying cars, and so visits to dealers are going to decline. Customers will also be interested in contactless delivery systems and contactless after-sale systems.

Are you planning to launch any other India-centric models? 

India is a very price-sensitive market. Our first model here was above Rs20 lakh ($27,073). So, I think for more volumes, we need to go below that price. We would endeavour to launch more cars below Rs20 lakh in the future.

Do you think Indians are ready for EV four-wheelers? 

A 100%. In 2019, there were only two players in the Indian EV market and they were selling less than 2,000 cars a year. In 2020, this went up to 7,000, and this year, it will probably be over 13,000. The number is still minuscule in the context of the overall car market in India, but I think it will touch 100,000 in the next four or five years. Consumers in India are clamouring for EVs, and it’s a question of how many choices we can make available to them.

How can a global carmaker survive in a price-sensitive market like India?

Pricing for India is very tough, and that’s why most multinationals have struggled in the country. It is a very intense and complicated job to figure out how to assign Indian values to the features and price models. You have to go for more and more localisation, and maybe join hands with some of the suppliers and get some technology also localised.

There are lots of challenges on pricing but I think what can help in reaching breakeven and then making money in India is enhancing the skill set of Indian micro-, small- and medium-enterprises (MSMEs), training local talent, and localising.

Do you think India has enough resources for localising? 

In India, very few players have been successful but those who have succeeded are making good money. If you take a look at Maruti or Hyundai or even two-wheeler makers like Bajaj or Honda, they are all pretty profitable. The name of the game in India is what I call an R to R model: raw material to resale the product. You look at the whole value chain from raw material to resale, and then at every stage, you have to see how you can economies, how can you form partnerships, the revenue models, and economise the cost.

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