Indian automakers

Will they finally make the shift out of diesel?

When the Supreme Court imposed a ban on diesel SUVs in Delhi, it raised a storm of protest from companies that had bet on diesel. But this was always coming and it is surprising that the auto companies had not anticipated that. But first some history to the debate!

Started with a price arbitrage…

 For long, diesel enjoyed a special status in India. It was supposed to power tractors and heavy commercial vehicles that were supposed to power the wheels of the economy. Soon auto companies saw the arbitrage. With the introduction of sophisticated diesel engines, they could give the same performance as a petrol car at much cheaper operating cost. This became the enduring business model for companies like Tata Motors and M&M. Things changed when the current government decided to remove the subsidies on diesel and subjected it to free pricing. With the price advantage gone, the major advantage of diesel cars was already lost.

Volkswagen was the last straw…

The Volkswagen fiasco was the last straw on the diesel engine’s back. When VW admitted that they had installed Cheat Software to fool the pollution testing equipment, it virtually opened a Pandora’s Box. It turned out that diesel engines were awfully polluting and a real threat to the environment. Governments the world over have gotten strict with diesel engines. This is likely to lead to the introduction of stricter and more transparent testing norms and higher cost of compliance for diesel car makers. With the cost advantage gone and the compliance costs much higher, diesel as a business model does not inspire any longer.

Indian cities are choking…

When the Supreme Court talked about Delhi, the broad reference was to most of the large cities in India. A plethora of cars on the roads, traffic jams and poor infrastructure has made diesel pollution the real bane of Indian cities. Delhi may just be the tip of the iceberg. Most of the other cities in India like Mumbai, Chennai, Kolkata, Bengaluru and Hyderabad will have to follow suit. This will have to happen sooner rather than later. With the climate commitments coming up, diesel will have to bear the brunt of the decision.

These trends could have long term repercussions for the auto industry in India. Diesel powered cars as a business model may not have a very bright future in India. We have already seen M&M launch its first petrol SUV. This may be the beginning of a new automobile trend in India. Passengers cars may increasingly shift out of Diesel and move to petrol versions. VW may not have caused it, but it has definitely hastened the entire move out of diesel. ©

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