Is this end of the road for Diesel cars?

Is this end of the road for Diesel cars?

It shook the automotive industry when the government of India came up with the new emission standards. These standards will regulate the output of air pollutants from spark-ignition equipment and internal combustion engines which include motor vehicles across India. Later on, India’s market leader Maruti Suzuki India came up with the decision of discontinuing some variants of its diesel cars ahead of BS-6 emission requirements. They were later joined by another giant in the automotive industry, Tata Motors.

 

What is BS?

 

BS refers to Bharat stage emission standards. These are the emission standards the government of India sets to control air pollutants from internal combustion engines and spark-ignition engines equipment. The standards and duration for implementation are all set by the Central Pollution Control Board (CPCB) under the Ministry of Environment & Forests and climate change.

 

The regulations regarding the emissions were first introduced in India in the year 1991 for petrol vehicles and 1992 for diesel vehicles. The European standards for emissions were first introduced in the year 2000. Since then, the compliance regulations have been climbing up and becoming more and more rigid.

 

The beginning of the end?

 

The government of India is becoming more concerned about the climatic changes and its impact of health and agricultural produce of the country. Cities like Delhi, Faridabad, Bhiwadi, Gurugram, Patna, Lucknow, etc have exceeded the limit for air pollution in the environment which is unsafe for humans to breathe in. These cities have terribly failed in all the air purity tests conducted which were compared with the standard levels.

 

The government is adopting tough measures to get in control of the situation, one being the implementation of the BS-6. Reacting to the government’s decision, Maruti Suzuki announced that it will be discontinuing its diesel cars, there was a disbelief in the market when Maruti Suzuki announced its decision because it was very hard to believe that automobile manufacturer would let go of its diesel-car business which accounts for about 25% of their business which would cost them lakhs of customers.

 

Tata Motors, another player in the automotive industry announced that they will shed off small diesel cars from its portfolio. The company justified their decision by stating that the demand is low for vehicles in this segment having diesel engines. Further, investments in this segment would not be feasible for the company.  The cost of manufacturing vehicles compliant with BS-6 would be high which would result in declined demand for the cars.

 

Maruti Suzuki will be discontinuing diesel models of their Swift, Dzire, Baleno cars and they would -focus on Ertiga, Ciaz & S-Cross models which would continue to be manufactured in diesel variants, Whereas Tata Motors would shut down its diesel models of Tiago and Tigor and other models would continue to be available in diesel variants

 

Why are companies letting go of their diesel car segment?

 

After a certain predefined duration of time, the government comes up with a new BS emission standards which hold the auto-manufacturing companies responsible for the emissions that their vehicles create. To comply with the standards the companies have to continuously upgrade and make modifications to their vehicles

 

The company will have to make heavy investments for a segment which falls under the category of ‘budget range vehicles’ having a small engine capacity. The costs of making small engine BS-6 complaint would raise the cost of the vehicle.Increase in costs might lead to a decline in demand as customers would shift towards petrol variants of the vehicle

 

So instead of investing heavily to make existing vehicles BS-6 complaint, companies are shutting down diesel variants of their cars and focusing towards premium ranged diesel variants and other petrol cars.

 

Stock Movement: 

 

The share price on 25th April ’19, the day Maruti Suzuki disclosed that they will discontinue some variants of their diesel cars dipped 1.72% at Rs.6,902.95. On 3rd June 2019, the CMP of Maruti Suzuki was at Rs. 7,032.6. On 4th June ’19, the opening price stood at Rs.7,012 down 0.29%.

Tata Motors on 7th May ’19 announced that they will shed off small diesel cars from their portfolio. The stock price of the company on that day declined 4.5% to Rs.190.9. The CMP of Tata Motors on 3rd June ’19 stood at Rs.174.55. On 4th June ’19, the opening price was at Rs.174 down 0.31%. 

Conclusion

 

In India, Maruti Suzuki and Tata Motors announced that they will discontinue their diesel variant cars, but this trend seems to be global. Japanese car manufacturer Toyota confirmed that they will discontinue diesel variants in Europe. Volvo along with luxury car maker Porche have also decided to shut down their diesel variants of cars on account of rigid regulations regarding vehicle emissions. These changes in the industry are forcing auto-manufacturing companies around the world to resort towards a new era. The era of Electric Vehicles.

 

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