NEW DELHI: Sales of diesel vehicles might witness a sharp decline in the coming months as the price of the fuel comes at par with that of petrol, analysts said. Sales of diesel vehicles have slowed over the last few years as the price difference between the two fuels narrowed, ever since diesel price was deregulated in 2014.
Maruti Suzuki India Ltd, the country’s largest passenger vehicle manufacturer, is likely to benefit from this development since the company has discontinued manufacturing diesel vehicles and thrown its weight behind petrol- and compressed natural gas-run vehicles as an alternative, they said.
The company cited high cost of development of diesel cars under the Bharat Stage 6 emission norms as opposed to petrol and CNG as the reason for stopping diesel car manufacturing.
According to Jinesh Gandhi and Vipul Agrawal, Motilal Oswal Financial Services, for the first time in the last few decades, diesel prices are at parity with petrol rates and this is driven by structural changes like diesel price deregulation and the recent increase in indirect taxes.
“With the double whammy of increase in initial cost of ownership for BS6 diesel vehicles as well as no material pricing advantage of diesel, it could further lead to a reduction in share of diesel vehicles. Under BS6, at current diesel prices, payback period would be 8.5-9.5 years to recover the higher initial cost of ownership," added analysts in a 24 June report.
Like Maruti Suzuki, Renault India and Nissan Motor India have also decided to stop manufacturing diesel vehicles as consumers are expected to move away from diesel engine vehicles, at least in the hatchback and affordable sedan segments.
“With Maruti Suzuki’s (MSIL) decision to exit diesel and the consequent aggressive pricing of competitors like Hyundai on BS6 diesel, there were emerging concerns about MSIL’s ability to retain diesel buyers in its fold. However, price parity between diesel and petrol would work to MSIL’s advantage considering its strong portfolio of petrol and CNG vehicles," the analysts further added in the note.
In FY13, share of diesel vehicles in the domestic passenger vehicle segment stood at 58% but declined to 29% in FY20.