Is it the beginning of the end of diesel cars in India?

Is it the beginning of the end of diesel cars in India? Indian roads were once dominated by four-wheelers propelled by diesel engines. And for long they have been the preferred choice of Indian consumers. However, with a push for electric vehicles and stricter emission norms, the outlook is looking bleak for diesel-powered cars. As the new BS-VI emission norms kicked in 2020, many carmakers trimmed diesel engine vehicles from their portfolio.

India’s biggest carmaker Maruti has completely discontinued diesel models. Tata Motors has discontinued smaller-capacity diesel engines. Honda India recently said it would most likely discontinue its diesel-engine cars. At present, Honda offers diesel variants of City, Amaze and its Jazz Premium Hatchback. Other carmakers like Volkswagen, Skoda, Nissan and Renault have also reduced diesel portfolios.

Compared with petrol vehicles, carmakers have faced many problems with upgradation to new emission standards and the costs shot up. Come March 2023, a new phase of emission norms will kick-in and this is further making carmakers vary of diesel engine cars.

Maruti had earlier said that the second phase of emission norms will further raise costs and impact sales. Under the second phase of BS-VI norms, vehicles must meet emission norms in the real world, as opposed to a laboratory. The focus will be on increasing fuel efficiency and, in turn, reducing emissions as well.

Diesel engine vehicles commanded a market share of over 50% in the passenger vehicle segment in 2012-13, but it has reduced drastically over the years. It has come down to 18% in FY22, according to data from Federation of Automobile Dealers Associations. The drop has been sharp particularly since the BS-VI emission norms were introduced in 2020. The market share in the PV segment almost halved from 33% in 2019.

However, the rise in sport utility vehicles (SUVs) is giving a lease of life to diesel variant engines.

GFX in – please show the rise of SUVs - Graph 2 in excel sheet attached

According to industry estimates, the share of SUVs in overall passenger vehicles has risen from just 18% in 2016 to 40% in FY22.

According to analysts and automakers, consumers prefer diesel engines in SUVs as due to their relatively higher pulling power at low engine speeds, making it an easier and quicker take off from the go. According to reports, the sales share of diesel-engine variants is 35-40 per cent in compact SUVs, 55-60 per cent in the midsize SUV segment, and even higher in the large SUV segment.

But, the overall picture is not good for diesel variant engines.

Apart from the stricter emission norms, the surge in electric vehicles sales has also spelled doom for diesel engine cars. NITI Aayog has set a target of EV sales penetration at 70% for all commercial cars, 30% for private cars, 40% for buses and 80% for two and three-wheelers by 2030. The narrowing down of petrol and diesel prices over the last few years has further reduced diesel cars appeal as the government reduced subsidies on the diesel.

So is it the beginning of the end of diesel in India?

Arun Agarwal, Deputy Vice-President - Fundamental Research, Kotak Securities says entry-level PV segment is dominated by petrol vehicles, but diesel still has presence in compact and mid-size segment. In the last two-three years, the demand for diesel was range bound and more or less stabilised. In the interim, diesel engines will continue in some segments, and eventually, there will be a shift towards cleaner fuel. 

Some automakers still see a future for diesel engines. Diesel is still a major component of automakers like Mahindra, Toyota, Jeep and KIA due to their SUV/MUV/Crossover product portfolio.

A Toyota official even went on to say that diesel demand is stronger than ever in India. Mahindra too echoed the same sentiment recently. Hyundai is still seeing a strong demand for diesel SUVs. The share of diesel variants in the overall sales mix at Hyundai rose to 27.4 per cent in the first five months of the current calendar year.

Conclusion: An outright exit for diesel may not happen anytime soon, but as India shifts towards cleaner fuels, the engines’ appeal may dwindle further.