Pet’rol’ v/s ‘Die’sel

Rohan, a resident of Mumbai wanted to buy a hatchback for his office commute and weekend family getaway. While he zeroed down on the Swift to suit his requirement; he was confused on which fuel option to opt for. While the office commute wasn’t much distant; he didn’t want the weekend getaways to cost dear. While this dilemma had been confusing the average Indian Car Buyer for long, the answer is much easier now. The Diesel is slowly losing its charm (rather competitive advantage) and petrol is strongly gaining acceptance due to the mentioned reasons –

  • Minimal Price Gap (Currently Diesel is priced Rs.48.33/ltr vis-a-vis Rs.59.68/ltr for Petrol)
  • Petrol Cars are easier and cheaper to maintain
  • Hefty difference in Petrol Variant On-Road prices v/s the Diesel counterpart
  • Better Drivability in city and Lighter Clutch on Petrol Cars
  • Lower Emissions in Petrol Cars
  • Easier availability of Automatic option in Petrol
  • The uncertainty of laws (who knows when Diesel cars can be banned!)

The statistics looks something like this:

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Maruti Swift Petrol v/s Diesel On-Road Price*

*prices referred from Carwale – Exshowroom Delhi

Hence, Rohan has to shell out Rs.1.34 Lakhs more if he opts for the diesel Swift (Vdi variant v/s similar spec Vxi). The cost difference will extrapolate even higher if the car is purchased on loan (interest amount being superior in this case). The cost saving in fuels would also not be considerable to recover the initial loss. Let us consider Rohan’s monthly travel to be 1500 kms (50 kms/day multiplied by 30 days); the average monthly fuel expense will work out to be –

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Rohan will end up saving Rs.2143/mth in Diesel car v/s the Petrol (Realistic <not ARAI> Mileage values are taken for calculation). Hence to recover the initial loss of Rs.1.34 Lakhs; Rohan will have to wait 5.23 years considering the above calculation! The waiting time will get even higher if interest costs are considered.

Hence, Rohan undoubtedly ends up opting the Petrol car as his purchase and similarly many other consumers are following this trend. The same is clearly evident in the sales graph this year – while sale of Diesel Passenger Vehicles degrew by 6.22%; Petrol Car Sales saw a resurgent growth of 15.27%. Petrol variants contributed to over 56% in FY16 and we expect the contribution to grow much stronger in FY17. The detailed chart highlighting the Fuel-wise contribution percentage –

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Source: ET

While the topic has been debatable for quite some time, India had always been a big market for small petrol cars. That’s why the Alto has been the numero uno selling car in the sub-continent and currently globally as well. But, the global sales trend has been varied across nations. We could find the consolidated list of best-sellers across the world here –

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Source: India Today

Analysis of World’s Biggest Car Market – China

The Automotive Industry in China has been the largest in the world  since 2008. Since 2009, annual production of automobiles in China exceeds that of the European Union or that of the United States and Japan combined!

While we had studied the US & Pakistan Car Market, we always wanted to present a report on China’s Auto Sales considering these facts –

  • Similarity to Indian Market – Although we are estimated 15 years behind Chinese Automotive Market, India’s demographics and population has immense similarity with the neighbor. Currently, Chinese Car Market is over 7 times that of India (whereas population of China is only 1.1 times that of India)! Car Sales trend of past 15 years –
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Car Sales Analysis – China
  • Chinese love for SUVs/Crossovers is also similar – In 2015, sales of Crossovers and SUVs soared 52% to 6.22 million units, and MPVs increased 10% to 2.11 million nos, while sedans slumped 5.3% to 11.72 million units.
  • Sheer Size – China’s No.1 Selling car Wuling Hongguang (Chevrolet Enjoy) sells higher than what Toyota+GM+VW+Nissan+Renault+Skoda sells in India! In 2015, cars sales in China increased by 9.1% – a growth rate just behind of that of Europe. It remains the only market in the world which has crossed the 20 million units sales. Cars Sales Registration data for Top International Markets –
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*USA, Brazil and Russia include light vehicles (trucks)
  •  Trivial History – Major Automotive companies are ‘State-Owned‘ – China has its traditional “Big four” domestic car manufacturers: Shanghai General Motors, Dongfeng, FAW, and Chang’an. All the automotive MNC’s are made to tie-up with a state owned corporation for setting up shop in the country.
  • Highly Profitable Sector – The profit of car dealers in China is quite high comparing to the rest of the world, in most cases 10%. This is due to the non-transparent invoice price as announced by manufactures and to the premiums they charge for quick delivery. Due to the lack of knowledge for most customers, dealers can sell add-ons at much higher prices than the aftermarket. There is no regulation by either the government or associations. Hence OEMs make big buck as well with the volume!
  • Electric Cars Revolution – China’s electric car sales outstripped that of US’s in 2015. Near to 2,50,000 electric cars were sold in China last year!
  • Brands Galore – Near to 445 Brands/Models are in sale! Just imagine the plight of an average consumer – which car to pick?

Car sales in China increased 8.7% in 2015 to top 20 million units for the first time ever. Out of the Top 50 selling cars in China (for 2015), 13 brands are common to the Indian Market. However, the Indian counterpart sales is nothing to boast about. The sales analysis to be found here –

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Top 50 selling cars in China for 2015

China also has a Dragon’s share for the premium brands. China contributes to over 1/4th of the overall sales of the German biggies. The world’s no.1 premium car maker BMW stands second in the list in China. Audi ranks first in the Chinese rankings and over 32% of its sales comes from China! In 2015, for the first time ever in a calendar year, China was the most-important single-country market for Mercedes Benz. Mercedes Benz sales in China increased by 32.6% to a record 373,459 cars. In China, Mercedes Benz is still around 200,000 cars behind leader Audi but nearly on par with BMW. Important for Mercedes Benz’s bottom line, a third of all S-Class cars are now sold in China with deliveries of the Mercedes-Maybach in China around 500 cars per month.

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Premium Car Sales for FY 2015 – China

Since the introduction of economic reforms in 1978, China has become one of the world’s fastest-growing major economies. As of 2014, it is the world’s second-largest economy by nominal total GDP and largest by purchasing power parity(PPP). China is also the world’s largest exporter and second-largest importer of goods. China is a recognized nuclear weapons state and has the world’s largest standing army and second-largest defense budget. We have a lot to catch behind this Asian Superpower – and ensure we do not repeat mistakes that it did (the growth in cars made it the most polluted country in the world as well – right time to focus on BS6 and Electric Cars). Also Indian Government should initiate reforms on infrastructure and public transportation to target holistic growth.

Is India BS6 ready?

Union Transport Minister, Nitin Gadkari’s tweet on leapfrogging to BS6 emission standards sparked a heated debate on the topic previously. However, Oil Companies and Auto Manufacturers have shared their concerns in terms of the short deadline and are worried in terms of the investment required to adhere to the norm. While still the BS4 norms is not implemented across the country, the nationwide deadline of BS6 implementation (by 2020) has shocked the automakers.

First let’s understand the emission norms in India. It is primarily instituted by the Government of India to regulate the output of air pollutants from internal combustion engine equipment, including motor vehicles. It was first introduced nationwide in the year 2000, based on European regulations. Emission Standards timeline for 4-wheelers is as shown:

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Source: Wiki

The changes done for adhering to the norms is not only in the vehicle (like usage of catalytic converters), but also in the fuel. The fuel specifications of gasoline and diesel have to been closely aligned with the Corresponding European Fuel Specifications for meeting the Euro II, Euro III and Euro IV emission norms.

So why is it that the government thought of directly skipping to BS6 from BS4 (and this is why we support the decision) –

  • Exposure to air pollution is leading to respiratory and cardiovascular diseases, which is estimated to be the cause for 6,20,000 early deaths in 2010! With this statistics, outdoor air pollution is the fifth-largest killer in India.
  • Savings in health costs for the public – Health cost of air pollution in India has been assessed at 3 per cent of its GDP!
  • Double standard of Indian OEMs – India-specific car emits 4 and a half times more cancer causing particulate matter and over double the amount of the poisonous nitrogen oxide than the same model made for Europe. So if you own a i20 in India, it is indeed much polluting than its European counterpart (irony is both are made at the same plant!).
  • Lag in Standards – While we are third largest emitter of CO2 gases in the world, we are generations behind in the terms of regulating the releases of these dangerous gases. As of 2014, only a few cities meet Euro IV or Bharat Stage IV standards that are nine years behind Europe. The rest of India gets Bharat Stage III standard fuel and vehicles, which are 14 years behind Europe.
  • Cities are affected the worst – According to a WHO study, 13 of the 20 most-polluted cities in the world are in India! The rapid growth of metropolitan cities is actually making them un-livable!

But, what are the challenges to achieve the deadline:

  • Oil refineries will need a substantial investment to upgrade – The shift of technology from BS4 to BS6 is likely to cost anything between Rs 50,000 crore to Rs 80,000 crore to petroleum companies! Considering the past implementation, the issues are genuine — the penetration of BS4 compliant petrol in the domestic market a full four years after its introduction in the metros, was just about 24 per cent, and that of BS4 high speed diesel only 16 per cent, according to government data up to August 2014.
  • OEMs have clearly said that going to BS-VI directly would leave them with not enough time to design changes in their vehicles, considering that two critical components — diesel particulate filter and selective catalytic reduction module — would have to be adapted to India’s peculiar conditions, where running speeds are much lower than in Europe or the US. The estimates of required investment to upgrade from BS-IV to BS-V are to the tune of Rs 50,000 crore.
  • Increased Size of the cars – Vehicles must be fitted with DPF (diesel particulate filter), a cylindrical object mounted vertically inside the engine compartment. In India, where small cars are preferred, fitting DPF in the limited bonnet space would involve major design and re-engineering work. Bonnet length may have to be increased, which would make vehicles longer than 4 metres, and attract more excise duty under existing norms.
  • Vehicle Safety – If the technology is inadequately validated, safety issues like un-intended acceleration or fires which may arise due to improper regeneration of the particulate trap. To achieve temperatures of 600 degrees Celsius required to burn the soot in DPF, and equipment manufacturers would have to work with temperatures of 400 degrees in sight. Usually, diesel is injected to increase temperatures, but the accumulation of excess fuel in the compartment can cause a fire. The injection rate has to be optimised and vehicles re-engineered for safety. The integrity of the vehicle too has to be considered. This would require validation tests over 600,000-700,000 km — a process that may take up to four years.

Technology requirements for upgrading to BS6 –

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Source: Indian Express

We support the government’s side of the debate and feel that it is high time we have a strict regulatory framework to reduce the pollution levels and implementation of BS6 standards will be a welcome step towards the endeavor.