Diesel cars account for 47% of the sales where as petrol cars take up 53%. This percentage is of the overall industry taking into account all the cars sold. However, when you just consider Mahindra and Tata Motors, you immediately realize that the diesel duty hike will have the worst impact on them. The reason is simple. Majority of Mahindra’s sales come from diesel models and the company does not have petrol variants in its portfolio (expect Verito).
With the hike in diesel excise duty Mahindra will have to speed-en up their development plans for petrol engines, as it could lead to fall in demand. Company may procrastinate their investment plans on capacity expansion due to the hike. The situation is the same with Tata Motors, who sells 70% diesel engined vehicles. With the Safari Storme launch just around the corner and the much talked 2013 Nano diesel, Tata Motors may hit profitability if it partially absorbs the hike.
“The additional levy on diesel cars will kill demand. If you were to impose additional tax on diesel cars by 5%, the government will be able to garner merely Rs 2,500 crore to 6,000 crore; increase in diesel fuel prices by Rs. 1 will result in higher proceeds of 6,000 crore for the government,” Dr. Pawan Goenka, President, Mahindra Automotive, said.
Maruti Suzuki will have to shift its focus to fuel efficient cars and will have to accelerate R&D on hybrid and electric vehicle with the increase in excise duty on diesel cars. The company acquires around 48% sales from their current diesel models. The most likely impact of the hike would be the end on long waiting period on popular diesel models like the Maruti Swift and Swift Dzire by one to two months and will confine the declining sales of petrol cars like Alto and WagonR.
However the hike will not only hit home grown automakers but also others including Hyundai and Ford. Hyundai is currently undecided on opening a local diesel engine manufacturing facility. The company imports all diesel engines from Korea. 22% sales come from diesel models and the duty hike might just reduce waiting period on the Verna. However, it will definitely affect the upcoming Elantra. Ford too relies heavily on diesel, selling close to 85% diesel engined variants in India. Meanwhile Honda is the only company which might not get affected by the diesel duty hike.
