Despite decline in share, it’s not end of road for diesel engines in India, says GlobalData

Following the news that German auto maker Volkswagen plans to exit diesel vehicle segment in India;

Bakar Sadik Agwan, Senior Automotive Consultant at GlobalData, a leading research and consulting company, offers his view:

“OEMs are certainly not finding the diesel segment in India as lucrative as before. Market leader Maruti Suzuki and other players including Nissan and Renault are looking to phase out their existing diesel variants and introduce more petrol, CNG or hybrid variants. Volkswagen is the latest OEM to join the list as the company plans to exit diesel passenger car market in India as part of its ‘India 2.0 strategy’. However, the company will continue to be present in the passenger vehicles segment as it intends to continue to supply SUVs in the Indian market.

“The share of diesel vehicles in the Indian PV market has been declining consistently since the past decade due to the narrowing price gap between diesel and petrol, and the resultant economic unviability of diesel vehicles. The share of diesel variants in the total PV sales declined to 29% in FY2020 compared to 58% in FY2013. Despite having a lower average vehicle life and higher maintenance costs over petrol, the diesel variants used to maintain an edge in the Indian market due to low ‘per-km’ cost, which presently stands at par with the petrol vehicles. Additionally, the taxes on diesel vehicles also substantially increased the cost of diesel vehicle ownership, in-turn decreasing their demand.

“The implementation of BS VI emission norms starting from April 2020 further added fuel to the fire. BS VI diesel engines are costlier, which makes the diesel cars economically unviable for most customers looking for cars in small and mid-size segment.  

“Given the economic instability, negative consumer sentiments due to COVID-19 and increased price of BS VI diesel variants, the demand for diesel cars is further expected to decline. However, it does not mean the end of the road for diesel engines as they would continue to find takers in the SUV, MPV as well as pick-up segments. Players such as Hyundai, Tata Motors, Mahindra & Mahindra and Honda continue to plan diesel variants.

“Hyundai in early 2020 announced that it will continue to bring diesel PVs in the market. 2020 Hyundai Creta has amassed over 65,000 bookings within four months of its launch and the diesel variant is witnessing higher demand. Mahindra & Mahindra, a leader in SUVs, also stated that most of its SUVs will continue to have diesel variants. Market for diesel passenger vehicles would certainly shrink but customers with certain kind of needs and preferences are likely to continue to find diesel variants in the brochures.”

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