Mumbai/New Delhi: Toyota Motor Corp., the world’s largest carmaker, will halt new investments in its India operations till there is clarity on the fate of diesel-powered vehicles.
A Supreme Court ban on the sale of large diesel cars in Delhi and National Capital Region (NCR) to improve the region’s toxic air quality has hurt companies such as Toyota, which relies on sales of its Innova and Fortuner models.
India has also advanced the implementation of stricter car-emission norms to 2020, adding to the uncertainty for car makers.
“We do not plan to launch any new models or make any fresh investments in the country till we know what lies ahead," said Shekar Viswanathan, vice-chairman at Toyota Kirloskar Motor Pvt. Ltd in a phone interview from Singapore. Viswanathan said he was “summoned to Singapore" (the parent’s Asia-Pacific headquarters) to discuss why the government is not being able to convince the Supreme Court on the futility of the ban.
Toyota’s decision to cap investments in India comes after the court on 31 March extended the ban in the NCR till 30 April.
The court first barred the registration of diesel vehicles with engines bigger than 2 litres in the NCR in December. It also doubled the entry tax on trucks coming into Delhi and took diesel commercial vehicles older than 10 years off the capital’s roads.
A plea by vehicle makers against the ban will be heard on 9 April.
Toyota, which has its flagship models Innova and Fortuner coming within the ambit of the ban, is the worst affected. The NCR region accounts for 15% of the sales of Toyota Kirloskar. The company’s sales dropped 41% to 7,637 units in March from a year ago, Toyota said on 1 April.
Viswanathan said the government of Karnataka has called for an emergency meeting next week to discuss the implication of the ban on Toyota, as the company offers direct and indirect employment to many in the state.
“Our models have been in the cold for the last three-and-a-half months," said Viswanathan.
Mercedes-Benz India Pvt. Ltd, India’s largest luxury car maker, which has several models with engine capacity of more than 2 litres, is another firm that has seen sales drop after the court order. NCR accounts for two out of 10 models sold by the company.
“All our models are emission-compliant, still we are facing this. This frustrates us," said Roland Folger, managing director and chief executive officer (CEO) of Mercedes-Benz India. Even as Mercedes will continue with its plan of introducing a dozen new models in 2016, “it will have to re-look at its investment strategy" should the ban continue, he added.
It is pertinent to have clarity on policy for the companies to make their strategies, said Kumar Kandaswami, senior director at consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd.
“Any investment related to capacity is taken at least two to three years in advance. Therefore, companies need to know which direction they need to head," Kandaswami said.
Automakers are tweaking their products and strategies in response to the court order, as the NCR region accounts for 7% of India’s auto sales.
This includes launching CNG, hybrid and electric vehicles, downsizing diesel engines to work around the ban, finding newer export markets for diesel engines and sharpening focus on petrol models. Some like Mahindra and Mahindra Ltd, which has a diesel-heavy portfolio, have already done it. Mahindra introduced a 1.99 litre diesel engine for its Scorpio and XUV 5OO models to beat the order. With all of Mahindra’s top selling Bolero and Scorpio being powered by engines higher than 2 litres, Mahindra, too, has felt the brunt of the order. NCR contributes 2% of Mahindra’s total sales.
Pravin Shah, CEO and president of the automotive sector at Mahindra, said the company will be launching petrol variants of the Scorpio, XUV500 and all future models in a bid to reduce dependence on diesel. The company doesn’t have any immediate plan to downsize the Bolero engine for NCR as the region’s contribution for the model is “insignificant", Shah said on 4 April.
Meanwhile, Toyota plans to launch the petrol version of the Crysta, the multi-purpose vehicle that is set to replace Innova in May. The company will introduce the model because it has already committed to it at the Delhi Auto Expo earlier this year.
“We plan to launch Crysta with a petrol engine also, which is specifically targeted to counter the diesel ban," said a Toyota official, declining to be identified.
When Toyota introduced Innova in 2003, the model did have a petrol engine variant, but due to tepid response, the company had to discontinue it.
“We don’t have the (petrol) engine (for Crysta) in India yet. We will have to source it from our global operations," the person cited above said. A second person familiar with the matter said that Indian vendors will be briefed about possibility of manufacturing of petrol engines at the upcoming supplier conference later in April. He also requested anonymity.