MG Motor expects sales to recover by December quarter
PremiumThe carmaker has reduced its sales growth forecast to 75% this year following the second wave
MG Motor India Ltd has cut its sales expectations for 2021 as it fears that a revival in the domestic automobile market from the ravages of the second wave of the pandemic could occur only by the December quarter.
The Indian arm of China’s SAIC Motor Corp. has forecast sales to grow 75% this year, lower than the doubling of sales expected prior to the outbreak of the second wave that severely crimped customer sentiment.
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Rajeev Chaba, president and managing director, MG Motor India, said in an interview on Monday that a shortage of semiconductor-based components and continued increase in international freight and material costs could hurt the automaker’s profits. MG Motor imports parts from different locations in Asia and Europe.
“Before the second wave, we were expecting 30-40% growth over last year’s small base at an overall industry level. Now, there will be a growth since last year was quite low, but I think it will be around 15 to 20%. The peak of auto sales was in 2018 (calendar year), and I think we will slip by another one year. At MG, we will launch a new product this year and that will help us report growth in sales. Earlier, we were expecting around a 100% increase in volumes this year, but now it may be around 75%," said Chaba.
Passenger vehicle makers saw a swift recovery in sales during August 2020 to March 2021 in line with the lifting of lockdown curbs imposed during the first wave of the pandemic. This was helped by pent-up demand, increased preference for personal mobility, and a faster-than-expected improvement in economic activity. Some reported double-digit increase in retail sales during the October to November festival period. Hence, most companies are hoping that the demand scenario would rebound in FY22 and reach close to the record levels seen in FY19.
Chaba said the domestic automobile industry could post a recovery in sales only in the December quarter, but it would hinge upon the outcome of covid cases and vaccination progress.
“I have reasons to believe that with the festival season coming, we should be back on track by the last quarter (December). Also, the customer sentiment will improve because the psychologically scarred customers will also feel confident about the covid situation," he added.
MG Motor entered the Indian market in 2019 and quickly established itself in the sport-utility vehicle (SUV) segment with the success of its first product, Hector. In FY21, the automaker reported a 62% growth in domestic wholesales to 35,597 vehicles aided by a low base and quick recovery in the overall economy.
Automakers and their component suppliers are, meanwhile, expected to face a tough FY22 due to a global shortage of semiconductor-based parts and substantial increase in commodity prices which have swelled operating costs. This comes at a time when volume growth is limited and so is the ability of automakers to pass on the entire cost increase.
Chaba said the chip shortage situation remains critical and that the situation might not improve this year. “The shipping cost and freight rates remain very high. We were expecting it to come down, but it has gone up instead. Also, all the material or input costs keep going up every month. So, the cost of operation has increased," he added. “Another price increase can happen in the next two or three months. For sure, I see huge pressure on the bottomline (profits)."
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