CNG vehicles may be more lucrative after revision of fuel price mechanism

The complete electrification of the automotive industry may be a few decades away but there is a growing popularity and acceptance of alternative fuels such as CNG across segments. Both from the affordability aspect and emission perspective, CNG is a lucrative option today, especially after the revised price mechanism. 

The government’s recent move to tweak the price guidelines for natural gas has made the retail price of CNG come down by Rs 5.97. This translates to Rs 73.59kg. While for most the Rs 6 difference hardly may seem a big deal, the cost saving for the vast majority of budget-conscious individuals who use CNG cars means more money in their pocket. 

The difference in price between petrol, diesel, and CNG, along with the growing availability of these fuel options across the country is further driving higher acceptance amongst buyers.

Thus, the price difference for CNG compared to petrol and diesel has now come down to Rs 23.13 and Rs 16.03 respectively.

In fact, as per an analysis done by Financial Express, the number of CNG vehicles registered in the country has been consistently growing by double digits.

In 2022 alone, a total of 699,731 CNG vehicles were registered in the country, which was 68 percent higher than the previous year. As of April 10, 2023, the industry has already sold 213,908 CNG vehicles, or 30.57 percent of the total CNG vehicle sales last year.

Impact on Passenger vehicle sales

The passenger vehicle segment was one of the fastest-growing segments in FY2023 for the Indian automotive industry. 

While it is difficult to estimate the exact number of CNG passenger vehicles sold in the fleet versus person mobility space, it can be fairly stated that with the growing number of premium models now being introduced in the CNG format, the desirability and acceptability are growing manifold for the personal buyers. Adding to that is the number of OEMs now selling CNG cars, what was started by Maruti Suzuki India to cater to and provide company-fitted CNG models, was slowly adopted by Hyundai Motor India, Tata Motors and now Toyota Kirloskar Motor (Toyota India).

Speaking to Financial Express, Shashank Srivastava said that while it is difficult to estimate the exact rise in demand for CNG models after the reduction in fuel prices, it surely will result in a growth uptick. “The move surely has a positive impact and increases the consideration set for potential customers. Then there is the availability of new models and launches, which further helps drive growth for CNG vehicles.”

The number of CNG models has gone from single digits to 19 and counting. The choices have expanded from hatchback to sedans and even the SUV and MPV segments.

Vinkesh Gulati, Chairman, Research & Academy, FADA too agrees that the move will see improved retail demand. “Most of the CNG vehicle buyers are consumers who are very cost conscious. For them, any revision of fuel prices does have an impact on their purchase decision. There are certain customers who delay their purchase decision, especially in the fleet segment when there is an upward revision of CNG prices. Similarly, the reduction in fuel prices will further bring further demand for the CNG models.”

There could be an argument around the hike in CNG prices not slowing down sales last year, but one also has to understand that with the rise in the number of models and new variants being introduced by OEMs in the CNG segment, a potential drop in sales was avoided.

On the other hand, when one looks at the monthly CNG vehicle registrations, barring January and February 2021, the industry has averaged almost doubled sales for the last 2 years.

But all said and done, going forward, will there be an upward or downward revision in CNG prices, no one can tell. On the other hand, the government’s focus on expanding the CNG network and OEMs introducing new models with gaseous fuel options bring in new customers to the segment.