Despite the government’s monetary and policy incentives for buyers and makers of electric vehicles (EVs), the world’s largest automaker Volkswagen feels that the business case between a conventional internal combustion (IC) engine and an electric engine is still not positive.
In an exclusive interview to CNBC-TV18, Steffen Knapp, director, passenger cars, said the company finds it unviable to bring out electric vehicles in the Indian market at the moment.
Currently, there are only a few thousand electric cars on Indian roads, while globally, electric vehicles contribute to about three percent of the total automotive market.
Knapp feels Volkswagen is the best-prepared original equipment manufacturer (OEM) to transition into the electric vehicle space.
"We will have to see the waves. We will have to see the normal customer we are selling to, and we’re predominantly selling to the private customer. They will not opt for electric vehicles so fast because the business case between the internal combustion engine and the electric engine is still not positive. It is also unviable for us to provide an electric vehicle as all the equipment that a customer wants today at a cost point which is equivalent to a petrol-powered engine. We’re monitoring the situation very closely, and learning from our activities around the world, especially in China and Europe on how to do this," he told CNBC-TV18.
"We have the product available, but we will only get into the segment when time permits and when it is a business case for us," Knapp reiterated.
Hyundai, India’s number-two passenger car maker by sales volumes, brought out India’s first long-range electric passenger car, the Kona, at a price tag of Rs 25.3 lakh.
"I don’t see a customer ready to pay Rs 2.5 million for an electric car when they can get a classical combustion engine of a bigger size in that price…Indian people are very focused on value for money. Therefore, it needs to fit both sides. The customer should get value and the OEM needs to survive too” Knapp said.
The government’s proposal to phase out all non-electric vehicles by as soon as the next four to six-year caught automakers in a tizzy, especially as the discussions are timed around an unprecedented slowdown in auto sales in the country.
Instead of providing a fillip to the industry in the form of a reduction in tax rate or the announcement of a scrappage policy, the union budget introduced earlier in the month imposed an additional cess on petrol and diesel, thereby raising the cost of ownership for petrol or diesel-powered automobile. The auto industry is currently also facing headwinds in the form of low demand, tight liquidity and an impending transition to safer emission norms next year.
All this has fed into the uncertainty of the buyer, according to Knapp, "The government’s way to tackle the future of mobility is a curvy road. It’s not completely clear, it’s changing, a lot of visions are afloat, but this is not possible to implement in the short frame of time. Instead, this also plays into the uncertainty of customers. Certainly, people see fuel prices going up and people living in cities are seeing rising congestion levels. Political instability, no clear policy vision, implementation challenges are causing people to defer their investments and rethinking."
On the production front, Knapp said Volkswagen read the signs early and started cutting production from May last year, "We’ve been pretty clever. We started lowering domestic production early to ensure our stocks weren’t oversized. We drive our business at pretty low levels which is vital for the network and for us. And we will not take any more production cuts, we are pretty clean right now."
"We split domestic production from international production as a higher portion is exports. You could see signs of a slowdown in terms of technology spending of all manufacturers and you could see something is going in that direction. Everyone was drunk on the growth as it was pre-GST, then there was a stop, following which volumes recovered and everyone started talking about 40 percent growth. In our case, already there is a tougher market situation. We saw a jump in the technology spending in the marketplace so we lowered our production for the domestic market to adjust to the demand. We would like to produce more but it is our obligation to ensure our partners are having good business case results," he added.
However, Knapp said Volkswagen is a company which places a huge premium on the residual value its cars fetch and they wouldn’t compromise that with tactical strategies like discounts or lower pricing to grab a bigger pie of the market share.
"The key is to survive. We want to earn money and at the same time also cater to your ecosystem which includes all parties with our brands – dealers and customers. We have an obligation to stick to a base volume so their survival is guaranteed. For us, a residual value is a very high value. If we go aggressive on the market, that automatically impacts residual value which we don’t value. If a customer comes back to sell the vehicle after 3-4 years and gets good resale value, it feeds back into the ecosystem and helps our brand portfolio” Knapp explained.
While Knapp admitted that Volkswagen’s current product portfolio in India is old (the last time it launched a new car in India was in 2017) and doesn’t help pique consumer interest in a market that’s driven by new launches, he said, "The company is building the fundamentals for their next line of launches for India, called India 2.0."
Knapp said Volkswagen isn’t clocking any growth in India given its current line-up but hopes interest in the brand will revive with the new launches.
The company is working on new dealership formats, taking investors out and taking the dealership experience online to build a profitable dealership network, "Real estate in cities like Mumbai, Delhi, Bengaluru is too expensive and creating a business case with classical dealerships is simply not viable in a lot of cases. So we’re creating new formats. Like pop-up stores which cost only 1.5 million and are already profitable.”Despite the slowdown in the industry, Knapp said Volkswagen is upbeat on the India story, "India will be a self-feeding growing market, its biggest advantage is its consumption. We are seeing a dip right now but we’re positive in the long-term."