Win Diesel: Why diesel cars will continue to burn rubber for a while

“The widespread availability of diesel across India further enhances the practicality of diesel vehicles,” noted  Bhatia.  However, he maintained that increased taxes on diesel vehicles could potentially dampen demand, particularly in the commercial vehicle segment, affecting the overall volumes of automakers engaged in manufacturing trucks, utility, and commercial vehicles.

Diesel sales will drop, but won’t stop

Over the past decade, the proportion of diesel-run cars in the total passenger vehicle market has continued to slide. Per data shared by auto industry analysts, the penetration of such cars in the total passenger vehicle (PV) market was 57.7 percent in FY2013-14.

According to JATO,  this is expected to decline to 18.3 percent in calendar year 2021, and is estimated to come down  to 17.7 percent by the end of 2023 (see the table below).

The diminishing share of diesel vehicles is largely because of the growing consumer inclination for other powertrains like petrol, hybrid, CNG, and of late, electric.

As Ranojoy Mukerji, a renowned automotive expert, puts it, “For anyone who drives more than 1,500 kilometres a month, diesel makes economic sense. While modern diesels are cleaner than their petrol counterparts, the government sees them as a font of pollution and is actively discouraging their use. Automakers are increasingly switching to petrol cars, which means in the future only commercial cab operators will be using diesel cars. I think in five years, diesel private cars will cease to exist.”

Currently, the government levies a 28 percent tax on diesel vehicles, apart from an additional 1 to 22 percent cess, depending on the engine capacity.

Dissecting diesel

Per an all-India study on sectoral demand for fossil fuels, diesel retail sales constituted 68 percent of the petrol-diesel basket, with the transport segment accounting for 87 percent of diesel sales, and the non-transport segment for the remaining 13 percent.

As per a presentation made by the automobile industry when discussing BS-VI phase II emissions, automakers invested  a total of Rs 50,000 crore on diesel powertrains between 2012-2022.  Furthermore, another Rs 10,000 crore of investments have been announced till 2025 to upgrade to BS-VI phase II. While commercial vehicle OEMs have made around 65 percent of the investments in the last 10 years, PV and three-wheeler companies have made the rest.

Maruti, Honda exit, but Tata, and M&M soldier on

While Maruti and Honda have exited the diesel space, other carmakers such as Toyota, Hyundai, Mahindra and Mahindra (M&M), etc., remain committed to the fuel. (Please refer to the table below for OEMs’ market share of diesel vehicles)

Maruti Suzuki, which is the market leader in the domestic PV market, phased out diesel engines from its portfolio four years back.  A senior official of the company affirmed that the “economic logic’’ of buying diesel-fired vehicles is not there anymore.

“The main reason why people used to buy diesels earlier was their lower running cost compared to petrol, due to the difference in the prices of the two fuels. That difference has narrowed substantially. At the same time, the acquisition cost of diesels has gone up. A diesel PV used to be about Rs 90,000 to 1,00,000 pricier than the corresponding petrol version. Today, the gap is Rs 1,50,000 to 2,00,000 because of the BS-VI phase 2 norms,” stated Shashank Srivastava, senior executive officer, marketing and sales, Maruti Suzuki India Limited.

However, Veejay Nakra, President, Automotive Division, Mahindra & Mahindra, is of the view that diesel engines have evolved over the years, and the company still commands a sizeable slice of the diesel PV market.

“One should have a fair understanding of diesel in the BS-VI era. The prevailing perception about diesel is not correct. Because technology has changed, and today, as far as CO2 and NOx is concerned, diesel is better than other fuels, including petrol,” said Nakra.

Shailesh Chandra, managing director, Tata Motors, Passenger Vehicles and Electric Vehicle Mobility, feels the share of diesel vehicles will decline automatically over time.

“There are thousands of people who want diesel models. So, as an OEM, our policy is simple. We will keep adapting to the market as well as to regulations. We now have diesel models in only a few segments, and maybe those too will come under further pressure in future, say, after BS-VII, and we will have to discontinue them,’’ said Chandra.

Govt., environmentalists up in arms against diesel

Even though some companies wish to hold on to diesel engines, the government and environmentalists have other plans.

A committee appointed by the Ministry of Petroleum and Natural Gas (MPNG) has recommended that diesel-powered four-wheelers should be banned in cities with a population of more than 1 million, by 2027.

A top Centre for Science and Environment (CSE) official said that doing away with diesels would be a step in the direction of “zero emission mobility.’’

“There are health concerns around diesel emissions, and that is the reason why there is a thrust on controlling diesel not just in India, but globally. Even in European countries, they are now talking about phasing out diesel. Therefore, the move in India is consistent with the position of governments around the world,  on reducing the share of internal combustion engines (ICE) and promoting zero-emission vehicles,” said Anumita Roychowdhury, executive director, CSE.

She also cited the findings of the World Health Organisation (WHO), which had classified diesel emissions as a class one carcinogenic, and put them in the same bracket as smoking tobacco and inhaling asbestos, due to its strong link with lung cancer.

“As long as diesel vehicles are there, it is important for us to make emission standards more stringent.  We need to  move towards electrification and should not delay that process by looking at cleaner diesel or some other intermediate solution,” added Roychowdhury,

The outlook

While the proportion of diesel cars is expected to come down in the long term, auto analysts do not  foresee a complete wipeout of this powertrain. JATO Dynamics predicts the share of diesels will come down to 15 percent by 2024-end, and dwindle further to 7.5 percent by 2030-end (please refer to the first table), and also anticipates the  total number of diesel cars in the country to decline from 1.09 million units to 0.56 million units (please see the table below).

“The future of diesel depends on the upcoming  stringent regulations and the affordability of alternative fuel vehicles in the coming decade,” said Gaurav Vangaal, associate director, S&P Global Mobility.

Avik Chattopadhyay, co-founder, Expereal (an auto marketing and strategy firm), and an auto industry veteran believes that diesel will never die as an “energy source” for the domestic automotive industry, and will continue to have  heavy-duty applications even after all two-wheelers, three-wheelers, light commercial vehicles, buses, and cars become either electric or hydrogen.

“Its ease of use, ready availability, portability, and rapidly improving engine technology will ensure the continued use of diesel, not necessarily in its present form, but as bio-diesel and hybrids. That is the future of diesel in the Indian automobile industry, or for that matter, any automobile industry, as long as the market is significantly large and complex,” explained Chattopadhyay.