Two-wheeler assembling business looks promising, but more needed on the policy front, say entrepreneurs.
--BY NEWBIZ TEAM
Nepal’s automotive industry is still in its infancy although it has been more than a decade since the country assembled its first car. However, despite the fact that the sector in Nepal is relatively new, the number of businesses registered with the Department of Industry (DoI) under the ‘automobile assembling’ category is quite impressive. The registration of such businesses has been growing with every passing year. Not only domestic companies, foreign companies also are showing interest to invest in the automobile assembling business in Nepal.
The production, however, is not satisfactory considering the number of automobile assembling businesses in the country. In the last fiscal year alone, six more companies registered under the Department of Industry, showing intent to invest in the automobile assembling business. Even the government has been promoting the automobile assembling sector, promising tax exemption and other facilities for such investments. This is one of the reasons behind the healthy growth in the number of such companies in recent years. Even though the number of registered companies is increasing, only a few of them are actually assembling motor vehicles. Despite the government providing a plethora of facilities for assembling businesses, consumers are not benefiting at all as the price of motor vehicles assembled here is the same as the imported ones, if not higher. Investors, however, bemoan a lack of friendly policies for the growth of this business.
Data provided by the DoI shows, a total of 31 companies are registered under the automotive assembling category. However, only a few of them are assembling two-wheelers and three-wheelers.
Six assembling companies registered with the DoI in the last fiscal year alone. CG Automotive Industries Pvt Ltd is one of them. The Chaudhary Group enterprise has said it would assemble Suzuki brand of two-wheelers, three-wheelers and four-wheelers in Nepal. It has made an investment commitment of Rs 1.31 billion to produce 10,000 two-wheelers, 3,000 three-wheelers and 10,000 four-wheelers, annually.
Similarly, MAW Auto Pvt Ltd has been registered with an investment of Rs 1.51 billion two produce Yamaha two-wheelers. According to the company, it targets to assemble 31,000 bikes and 19,000 scooters every year. Likewise, E-bolt Mobility Pvt Ltd aims to assemble 15,000 electric scooters annually. It has proposed to invest Rs 243 million in its assembling plant.
Another two-wheeler assembling company which registered with the government this year is Global Automobiles Pvt Ltd. The company has been registered with an investment of Rs 464.5 million, targeting to assemble 30,000 motorcycles and scooters and 5,000 autorickshaw. Likewise, SG Autocraft Company has proposed to spend over Rs 3 billion investment to assemble 2,100 electric two-wheelers, 1200 electric three-wheelers, 600 electric cars and jeeps and 120 electric buses annually. Towards internal combustion (IC) engine category, the company has targeted to assemble 10,500 bikes and scooters, 1,500 three-wheelers, 600 four-wheelers and 750 six-wheelers every year.
Similarly, Dugar Auto Clinic Pvt ltd has proposed to invest Rs 300 million to produce 24,000 two-wheelers and four-wheelers every year.
Besides, Hongfa Motorcycle Company, Hero Electric, Benling Motor Technology, Greatwall Electric Company, Sharp Vision Enterprises, Laxmi Motor Corporation, CND Group of Company, Sundar Yatayat Pvt ltd, Nepal Giant Car Industry, Jagadamba Motors, Bela Motors, Ever Star Motors and Nepal EV Company have also been registered with the department to assemble motor vehicles.
Companies active in the business
According to the DoI, Hulas Auto Craft, Shanker Group, Bela, Benling and Sundar Yatayat are already assembling two-wheelers in Nepal. Hulas Auto Craft, a Golchha Organisation's subsidiary, has established its assembling plant in Ramgram, Nawalparasi.The company has been producing Bajaj Discover bikes and has the capacity of assembling 300 bikes per shift.
Similarly, Shanker Group has built its assembling plant in Birgunj to produce TVS two-wheelers. The plant, which has an investment of Rs 1 billion, has a capacity to produce 100,000 bikes annually.
Bela, Benling and Sundar Yatayat are assembling electric two-wheelers in Nepal. Benling Motors, which opened its plant in April, 2018, has produced more than 400 bikes till now. Similarly, Bela, which has set up its plant in Baluwatar, has already assembled more than 200 bikes so far.
Sundar Yatatat recently started assembling two-wheelers in Nepal. The first private sector company to introduce electric buses for public transport, Sundar Yatayat, has started assembling two-wheelers in collaboration with China's Sichuan Guhang Automobile and UAE's SEC Group.
Besides, a home-grown company, Yatri, has already started producing electric two-wheelers in Nepal. It is currently producing two models - Project Zero and Project One.
No benefit for consumers
There is a huge demand for two-wheelers in Nepal. According to the Department of Customs, a total of 278,482 units of two-wheelers were imported into the country in fiscal year 2021/22. Although the number of imports is less than the previous fiscal year, it is clear that the demand for two-wheelers is still high. In this scenario, the motive behind starting assembling companies in Nepal is to reduce the cost for consumers. Unfortunately, consumers are not getting any benefit.
Locally assembled motor vehicles have to be cheaper compared to the imported ones. But it is not happening in Nepal. The price of locally-assembled products and the imported ones is almost similar. In some cases, two-wheelers assembled in the country are found to be more expensive than the imported ones.
“Our cost of production is comparatively higher. When production is high, the product naturally becomes expensive,” said Bhesh Bahadur Thapa, Chairman of Sundar Yatayat Pvt Ltd. “The government levies 35% tax on battery, 13% VAT, 5% road tax and other customs charges. Then comes the labour charge, transport and other small expenses,” he said, adding: “At least 10-15% of the parts get damaged during imports which add on to the cost of production. In this scenario, it is difficult to send cheaper products to the market.”
Thapa accused the government of prioritising companies that import vehicles rather than those that assemble and produce vehicles inside the country. “Unless the government provides us with a tax exemption, the consumers won't benefit from assembling companies,” he added.
Thapa also said customers are also skeptical about the quality of products assembled locally. “People are ready to pay any price for imported goods, but are hesitant to even test locally produced things,” he added.
In the current fiscal year, the government has announced a 40% income tax exemption for assembling companies for the first five years of operation. However, the facility is for only the companies that assemble electric four-wheelers. For two-wheelers, the government has announced to levy only 1% customs duty on raw materials and other parts.
“The government always talks about making industry-friendly policies, but does not do anything,” Thapa said: “Along with providing tax benefits, the government should look for other cost-cutting areas to promote assembling industries.”
NADA Automobiles Association of Nepal President Dhruba Thapa recently met Prime Minister Sher Bahadur Deuba and apprised him of the need of assembling plants in the country. “We need to create an environment for assembling plants in Nepal. It has a lot of potential. It can reduce the trade deficit,” he told the PM. Thapa also requested the PM to bring industry-friendly policies.
Assembling entrepreneurs say a new rule introduced by the government spells trouble for companies assembling two-wheelers. According to a new rule announced by the Ministry of Industry, Commerce and Supplies, companies assembling two-wheelers must ensure domestic value addition of at least 10% in the first year and at least 30% within five years.
Similarly, the rule also states that assembling plants must provide direct employment to 50 people in the first year of the opening of the industry. The number has to be increased to 200 within five years. Likewise, the government has made it mandatory for assembling companies to ensure that at least 10% of the raw materials are sourced locally.
Entrepreneurs find these provisions irrelevant. “The ministry brought this rule targeting big companies that can establish a large plant employing more than 100-200 employees to begin with. Such rules can kill emerging companies in the sector,” he added.