CNG, hybrid, EV to account for 20-30% of new vehicle sales in 5 years: ICRA

The proportion of CNG, hybrid and electric vehicles is expected to increase by 20% to 30% in new vehicle sales in the next five years, but petrol vehicles will continue to dominate the passenger vehicle (PV) sales in the industry, according to the rating agency ICRA. In terms of sales of diesel vehicles, the rating agency says that the stricter emission norms and the narrowing price gap between petrol and diesel has reduced the viability of diesel vehicles.

"We expect the proportion of CNG, EVs, and hybrid vehicles to increase to 20-30% of new vehicle sales in the next five years. However, petrol-based vehicles will likely account for a significant portion of new PV sales over the medium term. This makes it important to reduce emissions from petrol-based vehicles to meet the Corporate Average Fuel Economy (CAFÉ) norms and start the trajectory towards achieving carbon neutrality over the medium-to-long-term, besides promotion through the adoption of alternative powertrains, including EVs and hybrids," says Shamsher Dewan, senior vice president, ICRA Limited. 

As per the rating agency, CNG vehicles have gained prominence in recent years aided by favourable running costs, improving penetration of CNG dispensing stations across the country, and enhanced product offerings by original equipment manufacturers (OEMs). Lower emissions in CNG vehicles would also help OEMs comply with the impending CAFÉ norms, it says.

Meanwhile, despite the demand for EVs increasing exponentially, in the last two years its share in the overall PV industry remains low, at 1% currently.

In order to reduce carbon emissions, enhance domestic energy security, and reduce import dependency on fuel, the government introduced the ethanol blending programme in 2003. In 2018, another programme National Policy on Biofuels was launched with an aim to produce bioethanol that would be blended with petrol in order to reduce pollution. The policy envisages an indicative target of 10% ethanol blending in petrol by 2021-22 and 20% ethanol blending in petrol by the year 2025. 

ICRA says that ethanol blending would reduce vehicular emissions, strengthen energy security, help reduce oil imports and conserve forex reserves. Besides, other benefits include controlling excess sugar supply in the country, as approximately 65% of total ethanol production comes from molasses-based distilleries. "Ethanol blending in petrol has been gradually increasing in the last several years, and India achieved 10% ethanol blending in 2022. Further, the Government of India has advanced its target for E20 implementation to 2025 from 2030 earlier," it says. 

In June last year, the ministry said that India has achieved the target of 10% blending under the programme ahead of the targeted timelines of November, 2022. ICRA says that the OEMs in the automobile industry are unlikely to face any major challenge with the ethanol blending programme as no major design changes are required from a vehicle standpoint except material recalibration, and the impact on the vehicle cost is expected to be less than 1% in the case of passenger vehicles and about 2- 3% in the case of two-wheelers.

"While no major capex is envisaged, changes in engine designs and after-treatment systems apart from the material selection will be key to meeting the norms. Loss of fuel efficiency is expected as vehicles transition from the E10 to E20-compliant design, and this would increase the total cost of ownership (TCO). However, OEMs are looking at technological improvements like a lightweight to offset the impact. Operating E10-compliant vehicles with E20 fuel would result in corrosion of certain engine components, and there would be requirements to replace the corroded parts during the vehicle lifecycle," Dewan says. 

In January this year, the Society of Indian Automobile Manufacturers (SIAM) signed a memorandum of understanding (MoU) with the US Grains Council toward the promotion of higher ethanol blends in the Indian gasoline mix.