Home / Auto News / Rising CNG prices take shine off clean vehicles market

Rising prices of compressed natural gas (CNG) could hit sales of factory-fitted CNG models of passenger and commercial vehicles , according to industry executives.

Prices of the fuel, positioned as a cleaner alternative to diesel and gasoline vehicles, have jumped nearly 70% in the last 12 months. CNG is a popular choice, especially for passenger vehicles that cost less than 10 lakh, and in small commercial vehicles.

Preference for CNG vehicles as an alternative fuel option is primarily driven by their lower running costs. However, while CNG prices have risen sharply, those of petrol and diesel have remained largely stable or have marginally reduced in the same period, following an excise duty cut in May. This has narrowed the gap between the running costs of CNG and gasoline or diesel-powered vehicles, thus reducing the cost benefit of buying CNG vehicles.

This is leading potential buyers to weigh the arbitrage between paying a higher upfront cost for a CNG commercial vehicle, and compromised boot space in the case of passenger vehicles, and the potential cost savings from a cheaper fuel.

According to Maruti Suzuki (India) Ltd, which offers the largest portfolio of CNG models in the country, there may be reduced traction for CNG models now. “From a running cost of 1.2/km to now 2.6/km, there has been a significant increase in costs, but gasoline models still cost 5.1/km to run on average. So there is still a considerable gap in costs and relative advantage for customers," said Shashank Srivastava, executive director, Maruti Suzuki. “But if prices go up further, customers will start to consider the compromise in terms of boot space and price more seriously."

Srivastava said Maruti Suzuki continues to record higher month-on-month sales of CNG models, mainly because of a sharp ramp up in production after an extended period of shortage of CNG kits that caused long waiting periods, and also because of an expanded range of models. Maruti Suzuki sells seven CNG car models. However, the upward trajectory in gas prices has led the company to slow down the pace of launching new CNG models, as it has adopted a phased approach for four new models it was looking to launch in the next few months.

Hyundai Motor India, which sells two CNG models, the Grand i10 NIOS and Aura, said it has introduced discounts, besides marketing and advertising initiatives, to ensure sales keep growing.

“We have almost doubled our sales of CNG models compared to last year. However, the gap between CNG and petrol, which used to be as high as 30- 40, is now reduced to 10-15. This has made CNG a less attractive bet but as it gives 30% better mileage it is still found attractive. On the other hand, the number of fuel pumps is going up and compared to four months ago when there used to be a waiting period on CNG models, models are now available off-the-shelf," said Tarun Garg, director, sales and marketing, Hyundai Motor India.

The reduced traction is also evident in commercial vehicles.

“In the intermediate and light commercial vehicle (I&LCV) category, CNG penetration had increased to almost 40%of the total portfolio when CNG had a price advantage of almost 50% over diesel. However, over the last three months, the pricing advantage has reduced and the arbitrage now is around 20%. Despite the fall, we still have CNG penetration of almost 30%. So, the penetration that had gone above 40%, has come down to slightly below 30%," said Girish Wagh, executive director, Tata Motors.

ABOUT THE AUTHOR

Alisha Sachdev

Alisha Sachdev is an assistant editor with Mint based in Delhi. She reports on the auto and mobility sector, with a special focus on emerging clean mobility technologies. She also focusses on developing multimedia properties for Mint and currently hosts the 'In A Minute' series and the Mint Primer podcast. Previously, she has worked with CNBC-TV18 and NDTV.
Catch all the Auto News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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