India auto dealers cautious on June sales amid rare earth curbs, high inventory

(Reuters) -Indian auto dealers expect demand to remain cautious in June as high inventory levels, tighter financing and concerns around rare earth shortages weigh on the industry.

While above-normal monsoons are expected to support tractor and two-wheeler sales in semi-urban and rural markets, shortages of rare earths – critical to EV production – could sap demand, the Federation of Automobile Dealers Associations of India said.

Only a third of the industry body’s members expect growth in June, while around 55% expect flat sales.

Automakers and dealers have been counting on new EV launches to drive growth this year and soften the blow of slowing sales of combustion engine cars in urban areas.

“…global supply-chain headwinds — from rare-earth constraints in EV components to ongoing geopolitical tensions —may keep urban consumer sentiment in check,” FADA said.

To be sure, while sales of EVs in India have been growing at a faster pace than their gasoline counterparts, they still accounted for just 2.5% of the 4.3 million cars sold last fiscal year.

China’s suspension of exports of a wide range of rare earths and related magnets has upended supply chains crucial to automakers, aerospace manufacturers, semiconductor companies and military contractors.

Global automakers have warned of production halts due to the export restrictions.

While Indian carmakers are yet to publicly disclose the impact of the curbs, an auto industry body privately told the government last month it expects production “to come to a grinding halt” as early as the end of May or early June.

India’s top e-scooter maker Bajaj Auto last week said any delays in lifting the export curbs would hurt the production of its electric scooters from July.

TVS Motor, too, has warned of an impact by June or July.

The FADA also said high inventories of cars and commercial vehicles remain an overhang for dealers.

Inventories for cars stood at 52-53 days in May, above FADA’s recommended level of 21 days.

(Reporting by Ananta Agarwal and Nandan Mandayam in Bengaluru; Editing by Sonia Cheema, Nivedita Bhattacharjee and Saumyadeb Chakrabarty)

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