BS-VI to hurt sales of diesel cars, boost electric vehicles – M&M

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Mahindra’s lithium ion powered electric autorickshaw

The introduction of BS-VI fuel standard a year from now is expected to make small diesel engines too expensive to be of practical use and push the market for smaller vehicles towards petrol, CNG and electric vehicles, automaker Mahindra & Mahindra said.

Managing Director Pawan Goenka said the share of diesel engines in cars has already gone down considerably in recent years and the introduction of BS-VI models later this year will accelerate this trend.

“A small diesel engine vehicle will probably become less viable and therefore any diesel engine which is 1 liter or 1.5 liter will probably find it difficult to survive beyond March 2020,” Goenka said.

Small and mid-sized cars, which used to be evenly split between diesel and petrol a few years ago, have seen the balance shifting in favor of petrol in recent years due to the narrowing gap between the prices of both fuels.

Goenka said that the share of petrol vehicles in cars, which is around 75-80% at present, is likely to rise to 80-90% after the introduction of BS-VI models.

BS-VI models are expected to hit the market in December this year, ahead of the March deadline for a complete switch-over.

The reason for the impact is that it costs much more to make a diesel engine compliant with BS-VI norms compared to a petrol engine.

Petrol, comprising simpler hydrocarbon molecules, is easier to break down completely, while diesel, which has heavier, more complicated hydrocarbon molecules, requires extra effort to be completely oxidized. Incomplete oxidation results in the emission of carbon particles and soot.

“Post BS-VI, undoubtedly, on a like-to-like basis, diesel becomes more expensive than petrol. The delta [price difference] will increase,” explained Goenka. Mahindra & Mahindra is among the biggest sellers of small diesel vehicles, including pickups such as Jeeto that run on single-cylinder, 0.63 liter engines.

“A small diesel engine vehicle will probably become less viable and therefore any diesel engine which is 1 liter or 1.5 liter will probably find it difficult to survive beyond March 2020…Right now, many of the small, single cylinder vehicles are all diesel. They are likely to become more CNG,” he added.

BIGGER ENGINES TO CONTINUE

However, said Goenka, bigger vehicles, such as the XUV500, are likely to see continued demand for their diesel variants, despite a price increase.

Goenka said he expects the move from BS-IV to BS-VI to increase the price of a model like XUV500 by less than Rs 1 lakh. M&M had shipped Euro-VI compliant XUV500 models, and those cost around Rs 1 lakh extra.

However, he said, efforts are on to restrict the price increase to manageable levels.

“We will work hard to reduce that cost by localizing, optimizing and for pooling up for the kind of volumes we will have. We have exceeded our target, in terms of cost reduction, from that Rs 1 lakh base,” he said.

RESILIENT DIESEL

He said two categories of vehicles — those with high power requirements — such as commercial vehicles and big SUVs — and those that remain on the road most of the time, will continue to see demand for diesel variants.

“When it comes to the larger vehicle, we will continue with diesel being the primary power-train because of the need for the performance that diesel gives, which, for large, heavy vehicles, petrol is not able to give… For vehicles like Scorpio or XUV500, it will remain diesel, at least for some time,” Goenka said.

Diesel, being a more complex fuel with more carbon atoms, also gives higher mileage than petrol, besides being cheaper by about 10%. This can offset the impact of the higher price that has to be paid when purchasing the diesel variant compared to the petrol variant, especially for vehicles that are on the road most of the time.

This is especially true for categories like pick-up trucks that can often run 30,000-60,000 km in a year.

“In light commercial vehicles and pickups, because of the high drive-in, diesel will continue to be the powertrain, except in the small single-cylinder engines. Small single cylinder engines cannot afford the cost of being BS-VI compliant,” he said.

Goenka said his company is going to be ready the shift, even though the vast majority of its current sales are in diesel right now. Diesel models currently account for 80% even in the sub-four-meter SUVs, he said.

“By 2020 April, we will be ready with petrol on all our models. KUV already has petrol. XUV300 will be launched with petrol. Marazzo will have petrol by April 2020 or thereabouts and all new products that we’re working on today are being worked with diesel and petrol options,” he said. “We would become almost neutral, whether the demand is for diesel or petrol.”

Goenka said his company’s first BS-VI model will be ready by mid December. “By 31 March, we will be ready for all but one model. Engineers are trying to make that one model also ready by 31 March,” he added.

ELECTRIC VEHICLE BOOST

While BS-VI could drive small, single-engine pick-ups away from diesel towards petrol or CNG engines, it could have an entirely different impact on the three-wheeler market.

Unlike small commercial vehicles and CVs, for whom range is of crucial importance as they have to be ready for long trips, autorickshaws get a lot of time to recharge their battery between their short trips.

As such, three-wheelers are expected to be among the first forms of vehicular traffic to adopt electric engines.

M&M makes two types of electric three-wheelers — those powered by the traditional and heavier lead acid batteries and those powered by the lighter and more long-lasting lithium ion batteries similar to those found in electric cars.

At present, M&M sells about 800-1,000 of autorickshaws of the lead acid type, while sales of its recently unveiled Treo lithium ion autorickshaws, with a ‘fuel economy’ of 170 km per charge, are yet to ramp up.

“In the last month [January], we have sold less than 200. We are ramping up capacity and we will probably be selling 300-400 this month and another 200-300 added to that next month,” Goenka said.

Like many others in the industry, Goenka too sees three-wheelers as the low-hanging fruit in the quest to convert vehicles to electric technology.

He said he expects three-wheelers to have the highest penetration of electric technology among all categories of vehicles. The government offers a subsidy of Rs 61,000 for autorickshaws and 45,000 for e-rickshaws.

Moreover, said he, M&M is getting good feedback on its Treo, which can revolutionize the three-wheeler market with its ultra-low running cost. Against fuel costs of Rs 3-5 per km for petrol three-wheelers, the power cost for an electric three-wheeler can be counted in paise.

“Using a Mahindra Treo, a driver or operator will make 2,000-3,000 rupees per month more than he makes currently with a CNG three-wheeler,” Goenka said, adding that more and more inquiries are coming on this product as Mahindra is the first, and possibly the only, large scale player to enter the lithium ion three-wheeler market.

“There are many fleet operators who are very keen to get into electric three wheelers and these are new opportunities for most of them. We have demand commitments of 2,000, 3,000, 4,000 from different fleet operators. So, we expect that once we are fully ramped up, there will be good volume that we can get out of electric three-wheelers,” he said.

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