How automakers ran into a commodity storm after the GST lift

For Indian automakers, a surge in sales after the September tax cut has been eclipsed by a new concern: soaring raw material costs.

- Ayaan Kartik

Many are contemplating price increases at the risk of suppressing demand.In their December quarter earnings calls, companies including the largest carmaker Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Tata Motors Ltd, and two-wheeler manufacturers TVS Motor Co., Bajaj Auto Ltd, and electric scooter maker Ather Energy Ltd have flagged rising prices of key inputs such as steel, aluminium and copper. Combined with a depreciating rupee, higher prices are weighing on their profitability.

"I don't think anybody knows what's happening," Tarun Mehta, co-founder and chief executive at Ather, told analysts on 2 February. "This is truly unprecedented in every way. There are a lot of commodities going haywire.”

The pressure to increase prices could threaten a rebound in the world’s third-largest auto market after the reduction in goods and services tax (GST) and the festive period bolstered demand to a record in the quarter ended December. According to data from the Society of Indian Automobile Manufacturers (Siam), passenger vehicle sales during the period grew 21% to 1.27 million units, while two-wheeler dispatches rose 17% to 5.69 million units, and commercial vehicle offtake grew 22% to 290,085 units.