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The automobile industry and analysts tracking it were shocked when Maruti Suzuki India completely stopped manufacturing diesel cars in FY2019-20. The company traded a near-term loss in market share for long-term gains by moving slowly, but surely towards carbon neutrality.
Today, almost all passenger vehicle (PV) manufacturers in India’s auto landscape are talking of lowering their diesel vehicle production. As such, diesel vehicles' share in PVs has dropped from about 53 percent in FY2013-14 to about 19 per cent year-till-date in the current FY2024.
But a critical observation is that their share has inched up from levels of about 17 per cent in FY2021. According to the Federation of Automotive Dealers’ Association, the preference for compact utility vehicles, slight differential in running cost of diesel vehicles and the high demand for luxury PVs is keeping demand buoyant in this segment.
Given that vehicular pollution is considered to be among the critical factors in air pollution and climate change, the need of the hour is to bring down the share of fossil-fuel fired vehicles. Crude oil again made headlines as it hit $95 a barrel for the first time in a year. Stockpiles are low, global output is unlikely to increase in the near term, demand is strong and the onset of winter may only widen the global deficit in oil.
Another reason is vagaries of managing crude oil prices that upset India's fiscal parameters, a country that is highly dependent on imported oil for its energy requirements. Rising crude oil prices along with higher demand could exert further pressure on the widening fiscal deficit. Today’s Chart of the Day highlights some concerns on this front.
One way to contain these pressures is to reduce the use of the more polluting fossil fuel- diesel. The step taken by most state transport undertakings to order electric buses is a step in this direction. But it is not prudent to step up the cost of commercial vehicles (that use diesel) as it would add to inflationary pressure in the economy.
Passenger vehicles, therefore, are an easier target as diesel utility vehicles are typically found in the premium and luxury segment, where customers can absorb these costs. And, let’s face it, the rate of adoption versus the tall targets set in the electrification of vehicles, is pathetic so far. The numbers are more glaring in the PV segment. This is in spite of the FAME subsidies!
Time and again, there are statements made by the government or ministers urging the auto industry to reduce the production of high carbon-emitting diesel vehicles. In a recent media interaction, Maruti Chairman R C Bhargava pointed out that the government is enforcing the Cafe (Corporate Average Fuel Efficiency/Economy) norms. This will make the prices of diesel cars exorbitant.
Globally too, the energy conundrum is only increasing. This FT article (specially for MC Pro subscribers) cites the latest assessment by the International Energy Agency. Fossil fuel demand must fall by a quarter by 2030 to limit the rise in global warming to 1.5C since the pre-industrial period, it summarises.
If dealing a sucker punch to diesel cars helps further India's climate commitments, it's an idea that could gather steam.
Investing insights from our research team
Sagar Cements – Margin expansion on the horizon
EIH: Why investors got to check in to this luxury property
Cochin Shipyard: Expect some moderation as valuations enter premium zone
What else are we reading?
What India Inc can learn from ISRO!
What will Vedanta’s demerger gambit achieve?
IEA road to net zero doesn't count all costs
This ruling on powers of SFIO clears the air on its primacy
Lex | M&A/IPOs: Lies, damn lies and private asset valuations (republished from the FT)
Not implementing Women’s Reservation Bill (WRB) with immediate effect is risky for BJP
China Economy: Powell can't ignore the slowdown forever
The Cauvery Water Dispute: Navigating troubled waters amidst climate change
How states like Punjab can help power plants use crop residue and reduce stubble burning
Finally, there’s more money than fools in China
Long COVID is real. Now the evidence is piling up
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Technical Picks: RBL Bank, Aurobindo Pharma, Dixon Technologies, Coriander and NMDC (These are published every trading day before markets open and can be read on the app).
Vatsala Kamat
Moneycontrol Pro
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