Sales of CNG-powered vehicles take a hit as global natural gas prices soar

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A sharp increase in the international price of natural gas has led Indian automakers to cut their production target for CNG-powered vehicles, as they expect local rates that are already high to jump further in the next round of revision and hurt demand, ET has learnt.

The industry target for CNG vehicles has reduced to 5,00,000-5,50,000 units in the year ending March 2023, about 25-30% lower compared with the estimate of 7,00,000-7,50,000 at the beginning of the fiscal year. About 2,61,000 units of CNG passenger vehicles were sold in India last fiscal year.

CNG prices are revised twice a year, in April and October. CNG vehicles were in high demand when the prices of petrol and diesel were continuously rising earlier this year, increasing the price difference with CNG. The price gap, tough, has now reduced, as petrol and diesel prices that are reviewed daily have eased a bit.

CNG prices could go up by ₹12-15 per kg on October 1, based on the current international prices and the formula for deciding the local rates, further reducing the price gap.

The savings from driving a CNG vehicle has already reduced, Maruti Suzuki senior executive director Shashank Srivastava said. “Though the advantage remains, it has reduced, which has started affecting order inflows to some extent.”

The running cost of CNG vehicles currently is around ₹2.70 a km, up from ₹1.60 before the last price hike in April. For petrol and diesel vehicles, this has reduced to ₹5.00 a km from ₹5.30.

“There has been a 10-15% impact on the CNG vehicle bookings owing to the rise in CNG prices. Therefore, TTMT (Tata Motors) and MSIL’s (Maruti Suzuki) CNG vehicles (Celerio/ WagonR) are readily available for consumers,” Motilal Oswal Financial Services said in a note Thursday.

Srivastava said Maruti Suzuki has pending bookings for 128,000 CNG vehicles.

CNG vehicles account for nearly a fifth of sales at the company, the market leader in passenger vehicles. In models where the fuel option is available, sales stand at about 35%. “With production challenges easing up, introduction of a CNG variant in the Swift, our monthly sales have gone up to 32,000 units now from 26,000 units at the start of the year,” said Srivastava.

But he said demand for CNG vehicles in the industry was more muted now. “If CNG prices continue to increase, it will have a negative impact,” he added. Maruti Suzuki has plans to sell 4,00,000-4,50,000 CNG vehicles in the ongoing financial year.

Demand and enquiries for CNG vehicles are likely to be hit further in October, if domestic gas prices are raised as per the current pricing formula based on the international benchmark, which has seen a surge due to the Russia-Ukraine conflict.

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