As European cities institute bans on diesel cars and make them increasingly unviable, India is just beginning to show signs of a similar transition.
- As diesel cars seem headed for oblivion across the globe, a similar trend is showing early signs of picking up in the Indian market.
- While market leader Maruti Suzuki is considering a ‘diesel-free’ future, most car-makers are now shifting focus to other options like petrol, CNG, hybrid and electric.
- Price differentials between petrol and diesel have narrowed over the years, and will further reduce post the implementation of Bharat VI norms.
- The global clampdown on environment-unfriendly companies further makes diesel cars an unattractive option in the long run.
Diesel cars seem to be well on the road to oblivion across the worldas countries strive to clamp down on emissions. Stringent regulatory action on diesel vehicles in Europe in particular, has led to both falling sales and lower resale value. A number of citiesincluding London, Berlin and Parishave programmes in place to ban diesel cars. The market share of diesel vehicles in Europe dropped to 36.5% in H1, 2018, from 42.5% in H1, 2017.
Diesel cars have been immensely popular in India in the past due to the high price differential vis-à-vis petrol. But change is also coming in India, albeit at a slower pace.
STRATEGIC RETHINK AMONG PLAYERS:
Maruti Suzuki is also planning to shut down its diesel engine plant in Gurgaon, and is discussing the possibility of discontinuing diesel cars entirelywith parent company Suzuki. Meanwhile it has asked its dealers to set up their own CNG stations, as it plans to sell around 200,000 CNG passenger vehicles by 2022.
Recently, Pawan Goenka, MD, Mahindra, announced that the company is planning to introduce petrol engine optionsacross its product portfolio excluding Bolero.
Toyota, meanwhile is still exploring options in line with the shifts in the market, although it has also taken steps to diversify its portfolio. In a recent interview with The Indian Express, Shekhar Vishwanathan, Vice Chairman, Toyota Kirloskar Motor commented:
“If the consumer pursues diesel we will pursue it and make it in line with the rules and regulations and make sure that it meets the fuel emission standards. However, if the
market place is moving away from dieselas is the case in certain markets where consumer is rejecting diesel, we are also rejecting diesel.In India, that is not happening yet.”
Tata Motorshas already suffered the biggest quarterly lossin Indian corporate history for Q3, 2018-19 due to the woes of Jaguar-Land Rover (JLR). The problems faced by JLR are in part due to the overarching dependence on diesel technology, which it is struggling to overcome. Tata Motors has been making suitable adaptations to its diesel-heavy portfolioover the years in India.
ROAD TO MEMORY LANE:
While premium segment players like Toyota Motorsmay be still facing strong demand for diesel cars, the general trend is not favourable for the technology. The price difference between petrol and diesel cars in India has fallen. On January 1, 2018, petrol was 17.2% more expensiveas compared to diesel. By February 13, 2019, the differential fell to 7.1%.
Diesel cars will also find it daunting to meet the Bharat VI emission norms, which come into effect from April 1, 2020. These will effect a sharp rise in prices of diesel carsin particular. Goenka has admitted that the shift to petrol will be significant post-Bharat VI for small SUVs, even as diesel could remain popular in the large SUV segment. India has already instituted CAFE normsfrom April 1, 2017, that require cars to be 30% or more fuel efficient after 2022, and 10% or more fuel efficient between 2017 and 2021. Its mandate on controlling emissions will be quite hard for diesel car makers to achieve.
A diesel car is normally around Rs 90,000-100,000costlier than its petrol variant. But with Euro VI norms, the differential could increase to Rs 150,000-Rs 175,000. Breakeven levels of diesel cars have increased from 33,000 km in 2012to 54,000 km in 2018. Post-Bharat VI, they could rise to 90,000 km. Diesel share in overall vehicle sales is expected to fall below 25% by 2022, according to ICRA.
Moreover, larger global headwinds make the diesel car business tougher in the future. There is a rising trend in terms of environment, social and governance (ESG) funds, which look at a company’s overall record in these areas. Fund managers are no longer keen on investing in companiesthat are operating at odds with the environment. The spectre of stringent regulations looms largeover such firms, further making them unattractive investment targets.
Trends across the globe and India indicate a strong regulatory backlash against
diesel cars as well as a reducing cost differential vis-a-vis petrol. These trends will make it increasingly unviable to make, sell or buy them in the coming years.
So our strong advice is that your next diesel car should run on petrol or CNG or electricity… whatever works!