Learn From The Younger Brother...

Guest Commentary November 2019 Greaves Cotton Ltd BS VI Scrappage Electronics

DR RAVI DAMODARAN is Chief Technology Officer at Greaves Cotton Ltd


We have learnt about reuse, recycle and reduce in school. How much of that is practiced in the Indian automotive industry?

The industry has been grappling with uncertainty and volatility in recent times resulting in little job creation, something that has plagued the entire Indian economy in recent times. The introduction of BS VI legislations for emissions and safety has created debates, consternation and opportunities for the automotive industry in India. The nature of such a flutter has differed in the various segments – gasoline passenger cars, small diesel vehicles and two-wheelers.

In terms of technology, gasoline passenger cars will see the least disruption as the BS IV technologies present in cars just need to be recalibrated (control systems) or enhanced (exhaust and safety systems) – a capability that exists within the auto industry. Small diesel vehicles will face the most severe cost pressure due to introduction of some of these technologies, and some may even exit the market. Two- and three-wheelers present the most interesting case and may carry some lessons for the more glamorous and sophisticated passenger car industry, which has not yet fulfilled its potential for creating more jobs in India.

The passenger car industry has cultivated a supply chain that is distinct from the supply chain of the two-wheeler industry due to the higher standards of technology, quality and delivery expected by passenger car OEMs. Global technology players have had a significant presence in the passenger car supply chain, although the lower volumes per model in this segment have made localisation a difficult proposition for them. Save for Suzuki and Hyundai, all other global passenger carmakers have found the going tough in India despite a two-decade presence.

The unique product requirements of India (small car) and reliance on a product designed for other markets to grow in India has not paid dividends for them. On the other hand, the two-wheeler industry is dominated by Indian OEMs, who have customised products to meet the Indian customer needs, relying on low-cost Indian suppliers (mostly from their own group companies) and forging partnerships with regional technology partners. Being part of the group companies of OEMs helped the supply chain collaborate and build confidence and trust to invest in manufacturing capacities dedicated to the OEMs. Today, two-wheelers have a higher level of locally manufactured content (Made in India) due to the large scales (ten times as compared to the passenger car industry), higher degree of collaboration in the supply chain, and relatively low level of technologies required on the vehicle.

The low complexity of the vehicle also makes it easy to repair and service, a factor that has resulted in a long product life (~ 30 years) for two-wheelers as compared to the passenger cars, where the life has shortened over the years (~ 20 years). The long product life is enabled by a well-trained repair and service network that keeps vehicles on the road for a long period after the models have stopped coming off the production line and genuine spares from the OEMs have been phased out. The low per capita income levels of India projected for the next two decades will mean that the lowest income group will continue to depend on used two-wheelers for transportation.

RISE IN ELECTRONICS CONTENT

The almost negligible electronics content of two-wheelers in the BS IV regime will undergo a change with the advent of BS VI-compliant vehicles that will introduce expensive electronics and exhaust treatment systems. Technologies such as electronic fuel injection, exhaust aftertreatment systems, anti-lock braking systems, on-board diagnostics, etc. are made accessible with the help of global players, who have invested in manufacturing these in India.

The short time given to Indian two-wheeler manufacturers to achieve BS VI compliance has helped global technology suppliers participate in the supply chain of the two-wheeler industry, which till now, was largely a domain of the group companies of the OEMs themselves. However, unlike the passenger car industry, where the introduction of such technologies continued with significant import content, the large scales of the two-wheeler industry will encourage a high degree of localisation during the launch stage itself.

With the introduction of BS VI technologies, the two-wheeler industry has an opportunity to be different and lead in the localisation of high value content in the vehicle. Components such as sensors, injectors, electronic control units can be expected to be manufactured locally by global technology players in India. The passenger car industry can reduce import content of these high value components by leveraging the supply chain developed for the two-wheeler industry. The large scales offered by the two-wheeler industry can justify the setting up of high technology Tier I and Tier II supply chain in the manufacturing of mechatronics and electronics in India.

The higher electronics content in BS VI vehicles means a risk of lowering the product life (just like it happened in passenger cars), since no service and repair network exist for these unlike the mechanical components of the vehicle. The existing repair and service network has to be trained in the new technologies. Such a (electronics capable) network is in the formation stages in the appliances and mobile handsets industry and there could be synergies with the two-wheeler industry also. In addition, the higher cost of BS VI vehicles may impact volumes in the short term and boost used vehicle sales.

GROWTH OF USED VEHICLE MARKET

The retrained service network in the two-wheeler industry can boost the prospects of extending the product life in the electronics-intensive BS VI regime and pave the way for cheaper, cleaner used vehicles to the lower income segments in the future. Such an ecosystem prepares the industry to support future technologies such as hybrids and electric vehicles to sustain the long product life. In a likely event of the government introducing scrapping of vehicles, the electronics service network will play an important part in reuse of components and materials from scrapped vehicles. An organised scrapping industry that recycles materials will not only reduce the cost of new vehicles, but also reduce the burden on the planet (lesser hazardous e-waste).

Amidst the dark clouds of the cost and volume impact of BS VI legislations, we seem to have not only overlooked the positive impact on safety and reducing air pollution, but also have missed out the silver lining of indigenisation, e-waste reduction and job creation, all of which lead to sustainable development. Customer-focussed products, indigenisation, supply chain collaboration, capable repair and service network leading to a long product life are best practices from the two-wheeler industry, which can be leveraged by the passenger car service industry to transition from a ‘replace’ network to a ‘repair’ network and reduce waste in the entire ecosystem.