Honda may pause 2-wheeler capacity expansion over auto market slowdown

With India’s automotive market witnessing one of the worst slowdowns in its history, Honda Motorcycle and Scooter India (HMSI) has started to review its investment plans. HMSI, which is India’s second largest two-wheeler maker, said it would review its investment decision to boost capacity.

“Additional investment is under consideration. New investments for capacity depends on the roadmap for electric vehicles. We are going to continue to have new features and new technologies for customers. But we need to reconsider our production capacity plans,” said Minoru Kato, president and chief execitive officer (CEO), HMSI. 

However, it will continue with its proposed expansion in Gujarat. HMSI is expanding its Gujarat factory by setting up of a production line at an investment of Rs 630 crore. This additional 600,000 capacity will push up HMSI’s capacity to 7 million units by 2020.

Sales of vehicles in the Indian market have seen a prolonged downturn which has even impacted the two-wheeler market — the largest in the automobiles segment in India. 

Demand remained subdued in May 2019 in urban areas as was evident from a sharp drop in sales of scooters by 17.67 per cent. Similarly, in a sign of a slowdown in rural areas where motor cycles are popular, sales during the month fell by 8.36 per cent.

However, Kato said he expects the market to improve from September when the festive season kicks in. “For motorcycles, we expect a recovery from September. The second half of this year will be better than the second half of last year,” he said.

The second half of the year will bring with itself the situation of pre-buying wherein buyers will prepone purchases by several weeks and months to beat the price hike of Bharat Stage VI vehicles. It is expected that the prices of BS-VI two-wheelers will go up anywhere between Rs 5,000 and Rs 15,000.

In May, HMSI’s sales went down by 17 per cent, which is more than double of the industry. Marriage season, conclusion of Lok Sabha polls and good forecast of the southwest monsoon have failed to revive demand.

Honda has opposed the government’s proposal of allowing sales of only battery-powered two-wheelers below 150 cc by 2025. As per the proposal, all petrol-powered two-wheelers (scooters and motorcycles) having engines of less than 150 cc will have to be phased out by 2025.

Hero MotoCorp, Bajaj Auto and TVS Motor Company, along with the Society of Indian Automobile Manufacturers (SIAM), have criticised the proposal in unison stating that six years is too short a period for making the transition.

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