Automobile sales, which remained resilient despite the pandemic, showed a strong growth in the run-up to the festival season, with insiders upbeat about a return to pre-Covid-19 levels by next year.

Notwithstanding a price increase in two-wheelers following higher taxes, the sector posted a 50 percent sales growth compared to the same period last year, traders said.

Four-wheeler dealers are facing a shortage of inventory even as demand has swelled because of a short supply of semiconductor chips. The scarcity of semiconductors has sent shockwaves through the global economy, squeezing supplies of everything from cars to headphones.

The dearth of chips has exposed the modern world's reliance on these miniscule components, the basic building blocks of computers which allow electronic devices to process data, according to reports.

As plants reopened, electronic goods producers continued to place orders—creating an ever-increasing backlog for the chips, which can be just a fraction of a millimetre long.

Krishna Prasad Dulal, president of the Nepal Automobile Dealers’ Association, said demand had increased but there isn't sufficient supply. “Demand for vehicles will further increase during the festival time.”

Due to the short supply of four-wheelers and the tax waiver offered to electric vehicles, potential buyers are being attracted to battery-operated cars, Dulal said.

Global semiconductor chip producers are facing severe supply chain bottlenecks created by the Covid-19 amid demand. As per the international media, the global chip shortage will become less severe in the second half of 2022.

Automobile dealers are facing a shortage of four-wheelers ahead of the festival when demand has increased. Sellers said they were accepting bookings and delivering the vehicles as stocks become available.

Prajwal Maharjan, marketing manager at Pooja International, the authorised distributor of Volkswagen four-wheelers in Nepal, said that demand for four-wheelers was rebounding; but due to poor supply amid a chip shortage, they were having problems delivering vehicles on time.

"Higher prices caused by a rise in metal prices and semiconductor chip shortage has not affected buyer zeal," Maharjan said. “Four-wheeler buyers are not price conscious and higher costs do not impact sales that much,” he said.

Automobile dealers said prices of four-wheelers had increased by 10 percent and of two-wheelers by 10-20 percent since before the pandemic.

Observing current trends, Maharjan said 40 percent of customers prefer sports utility vehicles (SUV) due to their off-road features. Some customers are also looking for entry-level hatchbacks, but the market for sedans is slow.

Two-wheeler dealers are feeling the impact of higher taxes on their sales.

“We can feel the tax hike in sales somehow,” said Subhash Acharya, vice-president of the association. "Though prices have increased and there is a shortage of four-wheelers, demand for cars has increased in the market and people are buying them."

He added, "As people tend to buy goods after Sorha Sarad—the season when rituals are conducted to honour one's ancestors—demand is expected to increase further."

Nijen Lal Shrestha, business development manager at Syakar Trading, the authorised distributor of Honda bikes and scooters in Nepal, said that demand for two-wheelers had been continuously increasing in the market, especially after the pandemic.

“Demand for two-wheelers is still high, and it has not declined,” he said.

Prices of bikes in most ranges have gone up due to a rise in taxes and increased metal prices in India, automobile dealers said. The price hike has impacted consumers buying vehicles out of necessity rather than luxury, even then, its impact has not been seen in the market as people are buying them due to compulsion.

"Demand for Honda scooters increased so much after the first lockdown last year that the company faced a problem in supply due to slowed production in India," Shrestha said. "Bikes and scooters of medium range like Dio and Honda Shine are available in the market, but if customers are looking for higher range bikes like XR, they have to wait and booking has been opened."

Nepal’s biggest auto fair—NADA Auto Show—has been postponed for two years due to the impact of Covid-19. The organiser plans to make it happen in mid-February next year targeting New Year sales.

Acharya said that auto shows have been helpful in influencing consumer buying behavior and increasing sales.

Two-wheeler dealers say that the auto show has not encouraged customers to buy bikes and scooters.

Nepali New Year and Dashain and Tihar are the main seasons when automobile sales soar by 60-65 percent, mainly due to the attractive schemes and discounts offered by dealers.

The government increased the excise duty and road construction charge on two-wheelers through the revised budget for the fiscal year 2021-22. Prices have increased by Rs15,000 to Rs50,000 depending on the engine capacity.

Despite a slowdown in economic activities, two-wheeler sales saw significant growth compared to four-wheelers after the lockdown was lifted last year as people opted for private transport due to the fear of contracting Covid-19 while using public vehicles.

Nepal imported transport vehicles and parts worth Rs10.14 billion in the first month of the current fiscal year 2021-22, a sharp 123.8 percent rise year on year. During the first month of the previous fiscal year, vehicle imports were valued at Rs4.53 billion, as per the import data of the Trade and Export Promotion Centre.

The country imported vehicles worth Rs97.37 billion in the whole of the last fiscal year 2020-21.