(Bloomberg) — India’s biggest automaker has warned that strict European-style emissions rules due to start next year will force up car prices, dealing another blow to an industry that was in a slump even before the pandemic hit.
“Demand will fall further, and instead of any growth there will be a decline in the industry,” Maruti Suzuki India Ltd. Chairman R.C. Bhargava said in an interview. “The industry view is that it’s already suffering a decline because of Covid, and on top of that we add further to the cost of vehicles because of new regulations.”
Automakers last week urged the government to defer tougher emissions standards, which are due to be implemented in two stages in April 2022 and then in 2023. The changes will require carmakers to cut emissions about 13% to 113 grams a kilometer.
The emissions curbs are critical for India’s push to tackle some of the world’s worst air pollution, which costs the country 8.5% of its gross domestic product, according to the World Bank. By 2025, India will have up to 20 million old vehicles nearing the end of their lives, causing huge environmental damage, according to the Centre for Science and Environment.
However, the changes come at a tough time for the auto industry, which was just beginning to to recover from its worst-ever slowdown before the Covid outbreak again dented demand. Passenger vehicle sales fell 2% and overall production declined 14% in the year ended March 2021, according to the latest figures from the Society of India Automobile Manufacturers.
Automakers are also grappling with a semiconductor shortage and higher raw material costs as commodity prices surge. Mahindra & Mahindra Ltd., which makes sports utility vehicles, will increase prices if commodity prices climb further, Chief Executive Officer Anish Shah said in an interview with Bloomberg Television on Wednesday.
Any increase in car prices could deter India’s price-sensitive drivers. Just 5% of cars sold are priced above 1.5 million rupees ($20,000). The nation’s per capita income of only $2,000 a year puts cleaner, but more expensive, electric cars beyond the reach of most consumers, Bhargava said.
It will be difficult for automakers to pour resources into the new technology considering the industry invested as much as 900 billion rupees to transition to current emission standards, which set out a 68% reduction in nitrous oxide gases.
Maruti doesn’t make any electric vehicles because of their cost and the country’s sparse charging infrastructure. Hybrid models, improved technology for cars running on compressed natural gas and more efficient gasoline cars will be enough for Maruti to meet the new requirements, Bhargava said.
While the industry has asked for a deferment of one or two years, Bhargava said the new emissions rules should not be implemented until demand for cars recovers. The new standards will potentially reduce car penetration to 2% in India, where ownership currently stands at 30 per 1,000 people, he said. That compares to 816 per 1,000 people in the U.S. and 207 per 1,000 in China.
“A decline in the auto industry not only hurts carmakers, it hurts the entire economy,” Bhargava said. “If growth doesn’t take place then it will be counterproductive to do this. What is the use of getting European standards into India if people aren’t able to buy the cars? That is why the industry is saying please defer the new regulations so the price increase doesn’t come at this time which is a bad time.”
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