Maruti Suzuki, India’s largest passenger vehicle maker, is in discussions with parent Suzuki Motor Corp. on the future of diesel cars in the country which include whether the company should completely cease producing diesel vehicles, said three people aware of the development. Instead, the company wants to expand its offerings of cars that run on compressed natural gas (CNG), the people said.
Meanwhile, Mahindra, which is heavily dependent on diesel vehicles, plans to start offering petrol engine options across its entire range, except the Bolero model, said Mahindra’s managing director Pawan Goenka.
It is also contemplating whether to stop making light commercial vehicles, comprising products which run on small, one-cylinder diesel engines, said Goenka.
But unlike Maruti Suzuki, India’s second largest SUV maker will continue to offer diesel engines primarily because it feels consumer demand sustaining, especially for the large SUV models.
The moves by the automakers underscore a shift in demand towards petrol and other ecofriendly vehicles in India due to factors such as the narrowing price differential between petrol and diesel. Petrol was 17.2% costlier than diesel on 1 January 2018. The differential narrowed to just 7.1% on 13 February 2019.
Stringent government rules, especially the move towards stricter Bharat Stage-VI emission norms from 1 April 2020, are also making auto makers rethink their strategies. In addition, the corporate average fuel efficiency (CAFE) norms require vehicles to cut their emissions significantly and yet offer higher mileage. Diesel vehicles are at odds on these parameters.
The three people cited above said Suzuki is inclined towards completely stopping production of diesel cars in India and wants to invest significantly in CNG as an alternative fuel. Maruti is resisting the move since it will adversely hit sales. The two parties are yet to arrive at a consensus, the people said.
Mint had on 6 February reported that Maruti Suzuki has asked dealerships to bid for licences to set up their own CNG dispensing stations to keep pace with the company’s plan of selling about 200,000 CNG passenger vehicles annually by 2022 by introducing more models that run on the eco-friendly fuel.
A fourth person, and a parts supplier to Maruti, said Fiat India has informed Maruti that it will not be able to produce and supply 1.3 litre diesel engines after 31 March 2020 when the BS-VI norms are enforced. The 1.3 litre engine, which only meets the existing BS-IV norms, is used in Maruti models such as Swift, Ertiga, Baleno, S-Cross and Ciaz.
Maruti is, meanwhile, readying its own 1.5-litre BS-VI diesel engine that is expected to be launched this financial year. However, it may be a daunting task for the company to offer the engine across all its existing diesel vehicle models by the end of March 2020. Its development has been hit by several technical problems.
Maruti did not respond to emailed queries.
Goenka said having a petrol engine in the light commercial vehicle segment is not viable for operators owing to lower fuel efficiency compared with diesel, and if one adds the cost of developing a BS-VI engine.
“What happens post BS-VI is a question that everybody asks. I have said that for small SUVs, and small cars, probably there will be a significant switch towards petrol, but for large SUVs, I think it will be diesel. Where the line is drawn between mid and large, we do not know. A 1.2-litre engine will certainly become more petrol. A 2-litre engine will certainly be diesel. The 1.5-1.6 litre is on the edge and where it goes we don’t know," Goenka said.
As much as 20-30% of sales in the passenger car segment come from diesel engines, while the share is as high as 82% in SUVs. “Therefore, we started working long ago to ensure that after 2020 April, it does not matter to us whether the demand is for petrol or diesel. We will have good engines in both. In fact, we will probably have the freshest portfolio of engines in India with 1.2-litre, 1.5-litre and 2.2-litre engines. All three will come in diesel and petrol," Goenka said.
The factors which are forcing these changes go beyond the narrowing price differential between diesel and petrol, and extend to the rise of environment, social and governance (ESG) funds, wherein fund managers globally are reluctant to invest in companies that have exposure to any environmental risks. With the European Union making ESG funds mandatory in public markets, India, too, is catching up fast.
ESG investing constitutes investments that, while seeking positive returns, consider and evaluate the long-term impact that business practices have on society, the environment and the performance of the business itself.
Abhay Laijawala, managing director and fund manager at Avendus Capital Public Markets Alternate Strategies, which launched a $1 billion ESG fund last week, said an auto company, especially with exposure to diesel, runs high risk of regulatory action on air quality issues.
“So despite company meeting ESG criteria, we won’t have it in portfolio because it is a risk although it is a very good stock," Laijawala said.