Why Are Auto Companies So Bullish on The CNG Segment?

India’s largest passenger vehicle manufacturers are highly bullish on India’s CNG car segment. 

Maruti Suzuki, India’s largest car manufacturer, with a market share of 70 per cent in CNG cars, has said that it expects to see a 45 per cent rise in the sales of CNG cars in India. 

In the financial year 2023 (FY23), the company sold 325000 cars and expects to sell 450000-475000 cars in the current financial year. 

Tata Motors’ MD, Shailesh Chandra, has said that the company is working on new products in the EV and CNG space. 

Several popular models, like Altroz, are now seeing their CNG versions being launched in the market. According to trade publications, even the extremely popular SUV, Tata Nexon, might see a CNG version.

Better Infrastructure is Driving the Shift to CNG

As highlighted earlier, Maruti sold 325,000 CNG cars in 2023 – which is more than four times the number of cars sold in FY17, which saw sales of 73,907 CNG cars. 

Several factors have driven the shift to CNG.

CNG is a significantly cheaper fuel than petrol, and CNG cars have significantly higher mileage than CNG. 

Yet, when Maruti first launched CNG cars in 2010, the fuel didn’t gain immediate traction, despite the Indian markets’ price sensitivity. One of the major reasons is the lack of infrastructure and availability of CNG. Earlier, infrastructure was a barrier to buying CNG cars despite the running cost being significantly cheaper when compared to petrol and diesel. 

India has more than 80,000 stations selling petrol and diesel, and another 4500 stations (as of 2022) are focused exclusively on selling natural gas. Back in 2014, this number was just 900, and according to reports, it stood at around 1500 in 2021. 

The government’s efforts in carving up geographical areas and auctioning them to city gas distribution companies have helped in increasing the number of dedicated gas outlets in India. 

Earlier, existing petrol pumps would decide not to add CNG since it would require a separate island and dispenser. The investment required would have been difficult to recoup due to lower demand. But as the number of vehicles increases, and it becomes easier to source CNG through city gas distributors, it is becoming feasible for petrol and diesel dispensing stations to sell CNG as well.

Government’s Fuel Pricing Mechanism Changes Will Help Lower Costs for Consumers

The low running cost has made it a fuel of choice for auto rickshaws and cabs.

Local governments, too, have given greater preference to cleaner rickshaws, sometimes even putting outright bans on granting licenses to diesel.

The relatively lower running costs of CNG vehicles and electric vehicles have made them an attractive option at a time when conventional fuel prices are quite high. 

The recent change in the fuel pricing mechanism has helped lower prices for consumers and made CNG even more competitive than petrol and diesel. 

However, on the flip side, the upfront cost of buying a CNG car or retrofitting the vehicle with the CNG kit makes it costlier than a petrol or diesel car. The upfront price differential between a petrol and a CNG car is nearly Rs 1 lakh. The upfront cost might be a factor that has dissuaded prospective customers from buying a CNG car. But as disposable income levels rise, CNG cars could become more affordable for a wider population.

Options for CNG Cars Are Not Limited Anymore

The market also suffered from a lack of availability of cars with factory-fitted CNG kits. 

Even in 2021, only Maruti and Hyundai offered CNG cars, and this, too, was offered on only nine models. Mahindra has one passenger car with a CNG option, launched in 2018. Similarly, Tata Motors launched its first CNG option in 2021. 

So far, these CNG options have been introduced in cars that cater to the mass market and have low, upfront costs. Perhaps this is due to the average CNG customer being very price-conscious, but it could also be to protect the brand image. 

CNG is generally used by auto rickshaws and cabs, an image that a premium vehicle brand wouldn’t want to be associated with. In addition, the vehicle’s storage area becomes significantly smaller due to the heavy tank. However, with the government’s focus on promoting cleaner fuels, companies have begun phasing out diesel options and are bringing in CNG, hybrid, and fully electric variants of popular cars.

With rapidly growing dedicated gas infrastructure, increasing demand and the government’s efforts to lower gas prices for consumers will help boost the market for CNG vehicles.