Brent crude prices have slipped below the $90 a barrel mark on Friday, June 12, after US President Donald Trump yet again sparked hopes of a truce between the US and Iran in West Asia, which could reopen the Strait of Hormuz soon. Oil prices have declined from their war-high of over $125 a barrel.
How Does Falling Crude Benefit CV Makers?
For commercial vehicle makers, lower crude prices typically translate into lower diesel costs, reducing operating expenses for fleet operators. Improved freight economics can boost freight demand and, over time, support purchases of both medium and heavy commercial vehicles (M&HCVs) and light commercial vehicles (LCVs).
Industry observers note that the impact on vehicle demand will come with a lag of one to two quarters, as fleet operators will first take the benefit from lower fuel costs before expanding capacity or replacing vehicles.
Lower diesel prices also tend to improve fleet utilisation levels by enhancing the economics of transportation operations. In addition, commercial vehicle manufacturers could see a modest positive impact on margins from lower input costs.
How Will Falling Crude Benefit CV Financiers?
Commercial vehicle financiers may also benefit from the trend. Diesel accounts for roughly 35%-50% of operating expenses for many truck operators, meaning lower fuel prices can significantly improve cash flows and repayment capacity.
Improved profitability for fleet operators can also encourage fleet expansion and vehicle replacement cycles, leading to higher demand for financing and an increase in new vehicle loan disbursements.
As a result, a sustained decline in crude oil prices could prove supportive for both commercial vehicle manufacturers and lenders with significant exposure to the segment.
Which CV Stocks Are Reacting To Falling Crude Prices?
Commercial Vehicle manufacturers such as Ashok Leyland have seen their stock gain as much as 5% on Friday, in response to the falling crude prices, while those of Tata Motors Commercial Vehicles are also trading with gains of over 4%. Recent outperformers JBM Auto’s shares are also trading 5% higher on Friday. Among CV Financiers, shares of Shriram Finance are also trading with gains of around 2.6%.
