Share of CNG cars likely to increase in next 2-3 years as customers expected to shift from diesel: ICRA

Share of CNG cars likely to increase in next 2-3 years as customers expected to shift from diesel: ICRA

Share of diesel passenger vehicles will decline to 15%-18% of the whole segment in the next two to three years, from the existing 29% at the end of the FY 20 due to increased cost of ownership and reduction in price differential with petrol, according to the rating agency ICRA. During the same period, sales of compressed natural gas (CNG) driven vehicles is likely to outperform since they are considered eco-friendly and commands and lower operating cost.

Sales of diesel vehicles have been on a continuous decline since the union government decided to de-regulate the price of diesel in 2014. In FY 13, share of diesel vehicles in the domestic passenger vehicle segment stood at 58% but declined to 29% in FY 20.

“Diesel Passenger vehicle’s share is expected to decline to 15%-18% in FY2022e from 29% in FY2020. Within this, the share of diesel vehicle in car segment will stabilize around 5%-7% (from 11%) whereas UV segment’s share will gradually reduce to sub 40% (from 65%) over the next 2-3 years, the ratings agency said in a note on Wednesday.

“Retail diesel prices have been increased regularly in doses every month since January 2013 which has significantly narrowed down the retail price gap between petrol and diesel fuels. Further during the present Covid-19 pandemic time, increase in excise duties by central government and VAT by state government to partly offset for revenue losses further impacted fuel price gap,” said Ashish Modani, Vice president and co-head Corporate Ratings, ICRA.

CNG vehicles will mainly benefit from the shift due to reasons like lower upfront cost and better cost economics than diesel vehicle. The share of such vehicles, currently, is below 5% in overall passenger vehicle sales and is expected to outperform other fuel segment in the medium term. In line with the emerging trend, vehicle manufacturers are re-aligning their business strategy and some have exited from diesel powertrain offerings and are focusing only on hybrids and CNG, the note further mentioned.

Companies like Maruti Suzuki, Renault India Pvt Ltd and Nissan Motor India Pvt Ltd decided stop manufacturing diesel vehicles from April 1, 2020, as consumers are expected to move away from diesel engine vehicles at least in the hatchback and affordable sedan segments due increase in cost of Bharat Stage 6 norm compliant diesel vehicles.

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