Diesel Engines: Is the end near?
As said in the recent famous Netflix series Dark, “The end is the beginning, the beginning is the end” by a protagonist aptly applies to the case of Diesel Engines. There are various reasons to throw light on this issue right now when the whole world is locked down in their home and don’t know when they would get a chance to drive their vehicles.
Also, recent fluctuations in crude oil price made it see even the negative mark and somedays later price of diesel rocketing to the price of petrol. This needs close analysis as till date diesel was a major driving force for the vehicles in fields like Agriculture, Transport, commute and even power generators. But the rising price of diesel is leading to a smaller and smaller price differential.
A couple of days ago a senior executive at India’s largest carmaker, Maruti Suzuki, had this to say- “There is absolutely no logic in developing a small diesel engine. It is less than 5% in the hatchback segment and has reduced considerably in sedans and entry-level SUV segments as economics do not support it.” The executive also added that they may look at producing bigger diesel engines but then contended that they still hadn’t decided on the matter.
So does this mean diesel cars are a thing of the past?
The question arises how did we get here?
The economics involved in Diesel Engines
If someone asked generally, one can say that cost of Diesel Vehicles is always greater than their counterparts in Petrol variation. Owing to their heavier engine size and different components the price skyrocket. But the advantage they possess over the petrol variant is that the cost of the — fuel. Cost of Diesel is less because of its low volatility, Higher density and smaller cost of purification. As being widely used in all industries, the government had a role in regulating the cost of the Diesel so that it doesn’t spiral out.
It did too, for a long time. Diesel prices were handheld by Government by regulating the minimum taxes being imposed on the purification and sale. Also, the diesel engine consumes very less fuel and run a longer distance when compared to their counterparts which made them economical in the long run. So even if the initial investment is high, good returns can be accrued in the long run as long as the price remained low.
As an article in Bussiness Today notes:
At the peak of the price differential…(May 2012) — a litre of petrol cost Rs 30 more than diesel. The Indian market was in the middle of an unprecedented diesel rush. In 2012–13, diesel cars outsold petrol for the first time ever. Back then if one drove an average 60 kilometres a day, the superior running cost of just Rs. 1.91 per kilometre, compared to petrol’s 4.36 per kilometre meant break-even was possible in just over two years. In a five year time-frame, you could end up with savings of around Rs 1,48,000
This was from 2012, but a lot has changed since then.
In 2014, the government deregulated the price of diesel and then they bumped up the taxes. And now in 2020, the price differential is mere Rs. 7.
That’s just a half of it, the Automotive Industry is undergoing a huge tectonic shift.
For almost a decade now, Indian Vehicles have run on an environment standard called BS4, which is a legal amount of Vehicle Puff that it is allowed to emit. These are a set of norms and conditions, which the vehicles need to comply. Because of ever-increasing pollution in Indian Cities, the Government of India decided to skip the standard BS5 and adopt BS6. This is a new standard which requires more stringent adoption of norms and ensuring fewer effluents being emitted in the air. No sooner, The Supreme Court joined the hands and made sure the sale of BS4 is banned after 2020.
This was a major awakening for the Auto sector to adapt to the new standards and be ready for the future. And prepare they did.
But this decision made the price to go high. The price transition is much higher for the BS6 Diesel Engines as compared to their counterparts because of required advanced particulate filters and new exhaust systems.
As R.C. Bhargava, chairman of Maruti Suzuki noted — “When converted to BS-VI [standards], the cost of a diesel engine will increase by almost ₹1.25 lakh to ₹1.5 lakh. Overall, the difference in the price of a diesel and petrol vehicle will be almost ₹2.5 lakhs. Then, what do you expect the customers to do?”
So unless you plan to clock over 25,000 km per year and ply for a taxi, having a diesel motor vehicle would hardly make any sense unless you have a lot of money and you basically don’t care about the money spent and just want to experience the torque.
Published By
Parth Kulkarni
My pleasure to get in touch on the following platforms:
Originally published at https://www.linkedin.com.
