Challenges for the Automobile Sector

Thu, 10 Mar Pre-Open

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It was not long before when Supreme Court banned the sale of diesel vehicles in the National Capital Region (NCR). The ban was on account of alarming levels of pollution in the capital city. Reducing pollution levels have never been a priority in the past several years. However, things have changed now.

Climate change imposes great risk to economy. The National Democratic Alliance (NDA), under the leadership of Mr Modi, has taken several initiatives to address this problem. For instance, the government has pledged to reduce the dependence on fossil fuel for generating electricity. Work is in progress to build 100 GW of renewable energy by 2022.

In addition to this, government has decided to prepone the implementation of Bharat Stage-VI emission by a year to April 2020. Currently, India is implementing BS-IV emission standard. Government has decided to skip the BS-V emission standard and move on directly to BS-VI. Upgradation to BS-VI will lead to reduction of particulate matter by 80% in addition to reduction of nitrogen oxide level by 83%.This will help to significantly reduce the pollution levels.

Reportedly, adoption of new emission standard will also lead to increases in the prices of vehicles. An estimated increase of Rs 1 lakh for diesel vehicles and Rs 20,000 for petrol vehicles is expected with the switch to BS-VI standard. Appropriate modifications in the engine will have to be carried out by the automobile companies to make them suitable for the BS-VI emission standard. Auto firms, part makers and oil refiners will have to spend anything between Rs 700 to Rs 900 billion in order to be compliant with the BS-VI standard.

Auto majors have raised apprehensions regarding this government order and stated that it would neither be technically possible nor advisable to skip BS-V or advance the onset of BS-VI, before the earlier schedule of 2023.

The capital expenditure on account of application of BS-VI will come at a time where younger consumers are not only focused on speed and power, but on efficient interface and communication which increases the role of electronics and software. A significant chunk of investment would be required in this space too to make it more user-friendly. Not to forget the increasing demand for the electronic vehicles.

Going forward, automobile sector will have to allocate resources carefully in order to meet all these challenges. Further, there might be slight pressure on demand owing to rising cost of the vehicles on implementation of the BS-VI norms. It will be interesting to see how automobile companies respond to these events.

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