Finance Minister Nirmala Sitharaman in the Digital Budget 2021, proposed the introduction of Vehicle Scrappage Policy. This policy aims for environment-friendly vehicles on the road and removal of unfit old vehicles for a healthy environment.
In the Budget 2021, Nirmala Sitharaman introduced the Vehicle Scrappage Policy and delivered some key highlights regarding the same.
Passenger Vehicles or Personal Vehicles need to undergo a fitness test and have to renew the registration after 20 years.
Commercial vehicles have to renew their registration and undertake the fitness test after 15 years.
Nitin Gadkari, Minister for Road Transport & Highways had also mentioned earlier that under this Vehicle Scrappage Policy, more than 1 crore vehicles will be covered including light, medium & heavy vehicles.
The Minister further shared an estimate data regarding the current situation of the vehicles in India, which are older than the age prescribed in the policy. There are currently 51 Lakh Light Motor Vehicles (LMVs) which are older than 20 years, also there are in total 34 Lakh LMVs which are above 15 years of age.
Also, there are 17 lakh medium and heavy vehicles which are also 15 years of age which are also in operation, and hence all are needed to go under the fitness test as per the policy.
First of All, the Government of India is not going to undertake the inspection test of their vehicles which are above 15 years or 20 years.
Instead, the Government will scrap those vehicles under the policy and will take benefit of the subsidy provided.
All these scenarios will lead to the increasing demand for Automobiles.
As per the estimates, almost 15 lakh Government Vehicles can proceed for scrapping.
Ultimately, this step from the Government will create a huge demand in the auto sector, which was facing a dull period due to low demand and the effect of Covid-19.
Since, the Vehicle Scrappage Policy covers light, medium, and heavy vehicles (Broadly, Passenger Vehicles, and Commercial Vehicles) thereby, companies engaged in manufacturing of these vehicles will surely benefit from this policy.
Tata Motors is engaged in Passenger vehicles as well as Commercial Vehicle Business.
This business is also active in the business of commercial vehicles and passengers’ vehicles as well. Since products of mahindra like Scorpio, etc. already are in use and used in Government departments, then this point might also act positively for the company.
Ashok Leyland, the commercial vehicles manufacturer is engaged in the business of commercial vehicles like Buses, Trucks, etc. This Company might get benefit specially in those Government departments where Heavy vehicles are demanded, for instance, State Transport Corporations.
Across the board, Tata Motors is the company that seems to get the most benefit from the Vehicle Scrappage Policy.
The reason behind that can be the positive push by the Government and specifically the Transport Ministry is towards Electric Vehicles (EVs).
And if this push from the Government Side remains to be in favor of EVs, then as per current stats, Tata Motors appears to be the show-stealer.
To support this estimate, we can look forward to the EV sales by Tata Motors. As in the first 10-11 months of rolling out of EVs, Tata Motors avouches 64% market share in the overall EVs segment in the country.
As per the reports, Tata Nexon EV has crossed the mark of the sale of 2,500 units within 10 months of its launching.
Auto-Sector has already witnessed a cyclical downturn and also dragged a little more due to the effect of the Covid-19 Pandemic. And with this arrival of Vehicle Scrappage Policy and continuous push of Government towards EVs will surely boost the demand in auto sectors in future and will surely take the demand curve of the automobiles in an upward direction. Further, the possibility of increasing demand will surely benefit the automobile companies as well and therefore above-mentioned stocks should be in your radar.