The domestic automobile sector is currently grappling with double challenges – import restrictions on vehicles and a prolonged liquidity crunch. It has already been seven months since the import ban on passenger four-wheelers (cars, SUVs and vans) and motorcycles above 150cc engine capacity has been imposed. Dashing the hopes of automobile dealers, the government on October 14 extended the import ban till December 15 and it is still unclear whether the restriction will be lifted after that date. Laxmi Intercontinental Pvt. Ltd, the sole authorized distributor of Hyundai four-wheelers in Nepal, is one the biggest automobile distributors in the country selling a variety of Hyundai vehicles in the domestic market. the HRM caught up with Sandeep Sharma, Manager-Marketing and Communications of Laxmi Intercontinental to talk about the current state of the Nepali automobile sector, challenges as well as growth in the EV segment. Excerpts:
It’s been seven months since the government has imposed import restrictions on automobiles. How has the government’s import restriction affected the Nepali automobile market?
The restriction has not only hit the automobile sector but also other sectors, creating an imbalance in the overall economic cycle. The last seven months can be best described as the darkest period for Nepal’s automobile sector. If the import restriction is extended further, it will further damage the already battered automobile sector. It needs to be understood that the smooth functioning of the market is about the sustainability of dealers failing to do so will also adversely affect employment generated by the sector. Even if the ban is lifted after mid-December, the industry would need at least a year to recover from the shocks of the import restriction. The automobile industry is one of the top revenue-generating industries. So, the government needs to work on other ideas to improve foreign currency reserves rather than imposing a ban on the import of vehicles.
How are the sales of Hyundai passenger vehicles at present? How is the ongoing liquidity shortage in the banking system affecting sales?
The only thing to cherish is that there is no ban on the import of electronic vehicles (EVs). The EV segment has helped to keep our company running. However, the demand for EVs is just 20 percent compared to 80 percent for internal combustion engine (IEC) vehicles. Besides the import ban, the automobile market has been hard hit by the liquidity crunch. As 90 percent of customers purchase vehicles through bank financing, the liquidity crisis has badly hurt overall sales. Only a very few banks are providing auto loans, but the process is too lengthy, and it takes up to 45 days to get the loans sanctioned. This has delayed the decision-making process of buyers. The festival season used to be the busiest season for the auto sector. But this festive season brought no joy to the industry. There are not enough vehicles in stock and consumers did not get their desired model of the vehicle.
Of the total annual sales, one-third is recorded in the two months of the festive season. Every quarter, the sales used to be recorded at 1200-1300 units, but it has dropped to 400-500 lately.
What do the government and the central bank need to do to stop a further slump in the automobile market?
Just before the festival season, our understanding was the government would lift the import ban. But that did not happen. It is time to think about increasing the inflow of foreign currency rather than controlling the outflow alone. The automobile sector is one of the major contributors of tax to state coffers and controlling it will definitely hit the entire revenue stream of the government. I think that the import ban should be lifted in phases by setting vehicle price values in slabs.
How is the growth of Hyundai EVs? Which model is the best-selling Hyundai EV currently?
The share of EVs was 3-4 percent in the fiscal year 2019/2020. It dropped significantly to one percent in FY2020/2021 due to the Covid-19 pandemic and revision in the taxation by the government. The market share of EVs surged to 7-8 percent in FY2021/2022.
As the government has imposed a ban on imports of ICE vehicles, the sales of EVs have improved lately. The overall market share of EVs by the end of this fiscal year would be 20 percent.
For Hyundai, the best-selling EV is Kona which is a mid-range segment vehicle. And in the premium segment, the demand for Hyundai IONIQ is big.
EVs are expected to be mainstream vehicles in the coming years. What do you think will be the market for EVs in Nepal?
Nepal adopted electronic vehicles way earlier than India. Some EVs available in Nepal are not even available in the Indian market. I think it’s because of the difference in tax rates levied on the import of EVs. However, the lack of proper infrastructure remains the major hurdle for EVs to become mainstream vehicles.
It has been the third year the flagship event ‘NADA Auto Show was canceled, except for the EV expo. How is Hyundai Nepal working on marketing and promotional events in this situation?
We participated in the EV Expo and received well responses and queries from our customers. Definitely, with the start of the NADA Auto Show and the festive season, sales would go up. But with the import ban in place, there was very limited business. Now we are carrying out marketing and promotional activities for both ICE and EV through the festive offer, EV rally, and customer loyalty programs. As the FIFA World Cup 2022 is near, Hyundai, as the official partner, has organized a test drive campaign nationwide, where two lucky winners got the chance to watch the World Cup under Hyundai Hospitality Program. Those two lucky winners are flying to Qatar on November 26. And yes, all the expense is paid by Hyundai.
With this kind of offer, we want to value our customers for associating with an international brand, Hyundai. These are unique experiences that we offer. We shall also be sending two winners for the final match from our existing customers, wherein the existing customers need to register themselves and refer one potential buyer. We have been doing it for the last three FIFA World CUP seasons.
What does the future hold for internal combustion engine (ICE) vehicles?
The future of ICE vehicles is still good. I am saying this because Nepal has rough roads. Almost 30 percent of roads connect to rural parts of the nation and building the infrastructure of electric vehicles is a tough job at least for now.
Even consumers opt for ICE vehicles if they have to travel long distances regularly. There are a few charging stations along the highways, and on occasion, vehicles have to queue up for charging. During the recent Dashain festival, many EV owners experienced the same.
Laxmi Hyundai has installed 50 charging stations across the country. But is it really our job to install charging stations? Automobile distributors cannot sell vehicles and fuel/power at the same time. The government, at the earliest, should take initiative to build more charging stations across the country.
And another thing is that there is no clarity on whether people can open charging stations just like fuel stations. The government, if it wants to promote alternative energy, should form a modality for the same. Having said this, the resale value of EVs and the cost of changing batteries are the factors that define the future of EVs in Nepal.
