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2W dealer checks: Covid induced restrictions to impact demand momentum in near term

We conducted two-wheeler (2W) focused channel checks in both,electric and ICE based engines to assess demand momentum. Retail sales across major ICE based two- wheeler dealers continued to remain muted due to a) Multiple rounds of price hikes, b) High fuel prices and c) Increasing awareness on EVs. Footfalls are coming off as enquiries are once again shifting online due to rising Covid cases.Interestingly,e-2Ws enquiries havent seen much impact. Inventory continued to remain at inflated levels across most of the dealerships. Dealers are now expecting a pick up in sales during 1QFY23. Currently, OEMs are increasing prices to offset commodity inflation and discounts are insignificant.Based on the checks we conducted, it seemed electric two-wheeler companies have been conservative in passing price hikes to the consumers compared to traditional ICE based OEMs. New Covid led state wise restrictions and impact of Covid on consumer sentiments remain a key monitorable. TVSL remains our preferred pick in 2W segment owing to a) lower margin impact from commodity inflation, b) Strong export outlook and c) New product launches.

* Traditional 2W OEM feedback: We conducted 2W dealer focused channel checks with 5+ dealers covering 6 states to assess current retail sales and demand outlook. Two wheeler dealers see limited visibility in near term on demand revival prospects driven by a) Increasing traction from EVs, b) Weak rural sentiments, c) Increasing cost of ownership( price hike and high fuel cost and d) Increasing Covid infections. Two-wheeler dealers indicated slower than expected start to 2022 with significant drop in footfalls and enquiries due to rising Covid infections. Dealers expect sales improvement from April’22 driven by a) Marriage related demand, b) Onset of festive days (Gudi Padwa) and c) Improvement in rural sentiments driven by crop realisation. Major OEMs have announced price hikes to counter increasing cost inflation with lower discounts. Finance penetration has improved in the last 6 months led by attractive offers from financiers owing to increasing competition. Inventories across most dealers continued to remain at elevated levels (HMCL-45 days+, TVSL-30 days+) due to poor retail sales. Wholesale volumes in near term are likely to be impacted by poor retail sales. TVSL dealers highlighted that the demand for Rador 125 and Apache special edition continues to remain robust but TVSL is restricting supply to clear pending inventories of 2021.

* Electric 2W OEM feedback: We conducted channel checks across popular electric two wheeler dealers (Hero Electric, Okinawa and Ather) to asses the demand environment. Based on our checks, there has been no impact on the number of enquiries due to rising Covid cases. Telephonic enquiries have seen greater traction than store footfalls due to Covid imposed restrictions. Dealers highlighted that there has been a greater preference for Hero Electric driven by its expanding dealership network and after sales service. Given the demand scenario, we did not expect any discount to be offered across major OEMs but Okinawa dealers have announced a discount of 3.5k/unit on its Ii-Praise scooter. Inventories across major dealers continue to remain extremely low due to robust demand. Demand across major dealers continues to exceed supply due to chip shortage issues. While popularity of electric two wheelers continues to remain weak in rural areas, ICE based dealers are raising concerns on increasing penetration of EVs( EV market share in Jaipur has reached up to 10%). Hero Electric and Okinawa continue to have lower waiting periods (c.1-2 months) in comparison to Ather and TVS Iqube (c.3 months). HMCL dealers are gearing up for their first EV launch in Mar’22 but expect deliveries to commence from 1QFY23. Based on the channel checks that we have conducted, it seems electric two wheeler dealers are conservative in passing price hikes to consumers.

* Electric 2W dealer future outlook: Dealers across major OEMs highlighted than demand continues to be artificially inflated amid supply constrains due to chip shortages. Customer profile has witnessed a massive spike albeit increasing awareness of electric two wheelers (Higher cost of ownership of ICE based two wheelers). However dealers believe that going forward only selected OEMs would continue to outperform the electric two wheeler market catering to multiple aspects of an electric scooter (Range, speed etc.). Major dealers are of the opinion to introduce a new product only if sales of its existing models cross a certain threshold.

* Rising Covid infections will continue to impact demand: Based on our channel checks, we note that demand would continue to remain muted across 2W segments amid steep cost inflation and subdued consumer sentiments. Dealers across India remain pessimistic on demand recovery in near term amid a fresh rise in Covid cases and indicated that a slowdown in economic activities could lead to a prolonged delay in 2W cycle recovery. EV demand continues to pickup in states with higher Government incentives in Maharashtra, Delhi, Gujarat and Karnataka. New Covid led state wise lockdowns and fear of third Covid wave will keep volumes sluggish across 2 wheeler segment.

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