The Internal Combustion Engine (ICE) vehicle market, which has been facing a significant downturn in recent years, is beginning to show signs of recovery. After a challenging period marked by the rise of electric vehicles and strict lending norms, authorised dealers of major ICE vehicle brands have reported increased sales in the first quarter of the fiscal year 2024/25 compared to the same period last year.

While auto industry experts are cautiously optimistic about the revival, they say that it is too early to predict long-term trends. Distributors of leading brands such as Maruti, Hyundai and Tata have all noted improved sales figures in the review quarter, signalling a positive shift in the market.

The ICE vehicle market has struggled over the past three years due to multiple factors. The government’s ban on import of four-wheeler passenger vehicles classified as ‘luxurious’ in April 2022, high interest rates and a growing electric vehicles (EVs) adoption all contributed to the slump. Even though the import ban was lifted in January 2023, the segment continued to face liquidity challenges and elevated interest rates, making it difficult for potential buyers to secure auto loans. As a result, nearly all major automobile dealers reported a sharp decline in revenue during 2022/23.

This recovery in the first quarter, according to automobile distributors, can be attributed to enhanced bank financing, improved cash flow, rising consumer confidence and a festive sales boost.

“The sales have increased, but it’s too early to say that the ICE vehicle market has fully recovered,” said Sandip Sharma, Marketing Manager at Laxmi Intercontinental, the authorised distributor of Hyundai in Nepal. “The festive season may have provided a temporary boost.”

Sales of commercial vehicles—buses and trucks—that had slumped over the past two years are also showing signs of growth. Over the first three months of 2024/25, over 3,000 units of buses and trucks were sold, with growth observed across school bus, truck and luxury bus segments.

One key indicator of ICE vehicle market's recovery is the clearance of vehicles that were previously stuck at the Birgunj and Bhairahawa customs points. By November 2024, the backlog of around 3,000 ICE passenger and commercial vehicles, including cars and buses, stuck in customs since mid-July, had been fully cleared.

By mid-July, approximately 800 ICE cars, jeeps, and vans, along with 1,100 commercial vehicles, were stranded in the Birgunj Customs Office yard as dealers were hesitant to obtain customs clearance. However, within three months, almost all these vehicles were cleared, with fewer than 100 cars, jeeps and vans remaining—most of which were imported in the current fiscal year. A similar trend was observed at Bhairahawa Customs Office, where more than 1,000 vehicles imported in the previous fiscal year were cleared in the first quarter of the current fiscal year. This included 550 cars, jeeps and vans, as well as 700 commercial vehicles. Over 250 units of Suzuki and more than 450 units of Hyundai were cleared from the customs ahead of Dashain.

The festive season of Dashain and Tihar, events like the NADA Auto Show have played a significant role in driving recovery. Sharma from Laxmi Intercontinental said that his company sold 400 ICE vehicles in this festive season, marking a 30-40% increase in sales. Hyundai’s Creta and Venue models, in particular, have been standout performers in this quarter.

Sharma also pointed to the impact of recent floods and landslides, which may have led buyers to prefer ICE vehicles due to their perceived reliability in difficult conditions.

"While last year was tough for ICE vehicles, this fiscal year has seen improvements, especially for buses and cars," said Anup Baral, Managing Director of Narayani Auto Business. He added that Maruti Suzuki models like the Brezza and Fronx have reported strong sales, though demand for the Swift has remained relatively subdued.

Morang Auto Works (MAW), which sells Skoda and Jeep models, has also reported increased demand for ICE vehicles. The company sold approximately 40 Skoda vehicles and 9-10 Jeep vehicles in the first quarter.

Due to the recovery, Sharma said the market remains more balanced between electric and ICE vehicles compared to the import ratio, which currently stands at 80:20 in favour of EVs. The retail market shows a slightly more balanced ratio of 60:40. "The festive season has significantly boosted sales, and we expect this trend to continue," Sharma said. He anticipates a modest 5-15% improvement in the coming months as ICE vehicles continue to gradually recover, suggesting that while the road to full recovery may still be long, the outlook for the ICE vehicle market is becoming more promising.

Nishan Dhakal, Executive Director of IME Motors Pvt Ltd—the authorised sole distributor of Hinduja Group's Ashok Leyland in Nepal—told NewBiz that while he couldn't directly confirm an increase in ICE vehicle sales, he has observed signs of recovery in the industry. "There appears to be a slight improvement, but it's still uncertain," said Dhakal. "The market for light vehicles hasn't grown significantly, but the heavy vehicle sector is gradually picking up. The commercial vehicle segment seems to be recovering, with modest gains in the sales of buses and trucks."

Dhakal highlighted that long-route bus mobility has increased, leading to better bus sales before Dashain compared to other vehicle types. "Some of the growth in the ICE vehicle market can be attributed to bus sales, though other factors, such as recent plane crashes before Dashain, may have contributed as well. Even post-Dashain, it's difficult to definitively say whether the ICE market has increased or decreased."

Despite the uncertainties, Dhakal acknowledged an overall uptick in sales. "As other industries improve, commercial vehicle sales have naturally risen," he said, noting a general increase in mobility that suggests a return to market normalcy.

When asked about the future of ICE vehicles, Dhakal acknowledged the current preference for EVs but noted, “The ICE vehicle market appears to be showing signs of gradual improvement.”

(This articcle was originally published in December 2024 issue of New Business Age magazine.)