The share of diesel vehicles in the domestic automobile market is likely to fall below 25% post implementation of BS VI norms, according to research agency ICRA.
The share of diesel vehicles declined to 38% in FY18 and is expected to fall further to 35-36% in FY19, ICRA said, adding that it will eventually go lower.
“Regular increase in the retail price of diesel in small doses every month since January 2013 has significantly narrowed down the retail price gap between petrol and diesel fuels, making cost economics of owning a diesel passenger vehicle (PV) relatively less favourable now than in the past,” said Subrata Ray, Sr. Group VP, Corporate Sector ratings, ICRA. Mr. Ray added that the lower fuel price gap has resulted in customer preference shifting away from diesel vehicles. “Moreover, given superior fuel economy of hybrid cars, hybridization has also reduced importance of diesel models. Lastly, the implementation of BS VI norms too will significantly widen the cost differential between petrol and diesel cars, leading to the eventual decline of share of diesel vehicles.”
With preferences shifting towards petrol models, some OEMs recently introduced petrol SUV models. “Most OEMs are investing in flexible engine assembly line, instead of dedicated assembly line for diesel or petrol engine to optimally utilise resources and; incremental investments in diesel engine capacity has also taken a backseat.”
ICRA believes that OEMs will invest in diesel technology to comply with BS VI emission norms, but incremental capacity addition in diesel engine is likely to be limited.
Once BS VI emission norms come into force April 2020 onwards, required significant changes will result in price hike of about ₹75,000 for a diesel car as compared to relatively modest ₹20,000 in petrol car. Currently, a diesel PV is priced about ₹90,000 – 100,000 higher as compared to its petrol counterpart but with advent of Euro VI norms, this gap will increase further to ₹1.5 lakh – 1.75 lakh thereby further reducing advantage of higher fuel efficiency.
While small car buyers will find diesel cars uneconomical due to higher break-even, SUVs will continue to be dominated by diesel, though their share too will reduce to sub 60% level over next 4 years from 80%+ level at present.
