This thread is to initiate a discussion into and understand the future of diesel vehicle industry and companies based on diesel.
Fact 1: Beginning with Volkswagen, several companies have admitted to falsifying test data about the performance of their diesel cars.
Fact 2 : Since the ban on registration of diesel vehicles more than 2000 cc in Delhi several other states have initiated similar steps or are contemplating on that.
Fact 3: Diesel has now emerged globally as a bad boy of vehicle driven pollution.
Fact 4: The price difference between diesel and petrol fuels has been narrowing.
Fact 5: Entire population of HCVs and LCVs in India is diesel based.
Fact 6: Within 5-7 years, the world will move over to hybrid/electric/hydrogen fuelled automobiles.
Given this recent developments, the long term future of diesel is shaky. And performance of companies dependent on diesel as the primary driver of their growth. Prominent amongst these in India are Mahindra & Mahindra, Tata Motors and Bosch.
What does the future have in store for them?
Pros:
-There is a large infrastructure created around diesel beginning from refining to distribution to automobile engines to vehicles.
-There is huge capital invested in diesel as a car fuel not only in India but globally and it is not going to give up without a fight.
-The quality of fuel and the diesel engine performance is improving to allay all fears of pollution.
A lot of the recent decisions may have been prompted by perception rather than reality and the diesel lobby has failed to make itself heard.
Cons:
Emergence of new technologies may finally put paid to diesel dreams.
More states and cities emulating Delhi’s example may lead to a slow death for diesel.
Pollution is a big problem confronting India and authorities may take drastic decision, even if misguided, to show that they are taking steps.
Government may actually rework duties to narrow the price gap between diesel and petrol to wean off people from diesel.
Restrictions on old vehicles registration etc will push down future resale value of diesel cars, leading to drop in sales today.
Companies like M&M have already started veering towards petrol cars.
Immediately after posting this topic just read this news:
I would like to invite members to present their views on these developments to understand how it may impact companies involved in diesel cars and how their stock prices will behave.
I think government didn’t do anything wrong in banning diesel cars. If I remember correctly in an interview Mr. Rakesh Jhunjhunwala bluntly said that if our country need to progress the first thing government need to do is stop giving subsidy on diesel and petrol, secondly ban all diesel private cars. Diesel is more polluting fuel and our country is highly dependable on road transport. Even today most of the goods are transported by roads. So diesel should be kept exclusive for the HCV like trucks, tractor and other public transport.
Even Warren Buffet made a huge investment in railways saying its the cleanest and the cheapest form of transporting goods from one place to another in the country. I think its high time we also made the first move.
In a short term few company likes M&M, Toyota and Tata may feel the heat but the ban as of now is only for 2000 cc and above cars which should be stretched to all private vehicles in the coming years but that is nothing new. Honda went through the same phase when petrol was de regularised and they didn’t have a diesel engine.
If you see the forecast for power consumption in India, the estimation is that from current 1.1 trillion units, it will grow nearly 4x to over 4 trillion units by 2030.
This means that a lot of power plants will need to come in stream, including plenty of coal fired plants.
This presents a problem with emissions, especially with India signing the climate change treaty.
Electrical vehicles are now a commercially feasible reality, and therefore the government will try and reduce our vehicular emissions - these are low hanging fruit.
Piyush Goyal is on record to say the dream would be to have 100% electric vehicles on road by 2030.
The Internal Combustion Engine may very well be in terminal decline.
True. I think that the judicial direction is very clear. Diesel cars became popular only because diesel was cheaper than petrol. As the price gap narrows the economic edge of diesel will be withdrawn while the regulatory action due to pollution issues would be another nail in the coffin.
Obviously this would be impact all the companies dependent on diesel cars, whether it is the car manufacturers like M&M or OEMs such as Bosch. The question is - has this downturn in diesel been factored into pricing?
A very valid point made, banning of diesel private cars may be a good move for reducing the dependence of private car on diesel but it surely doesn’t serve the bigger emissions problem as of now.
We have to wait and watch wether government actually make the ban permanent or recall it in few months.
As far as car manufacturers or OEMs are concerned I am pretty sure market is not going to react too much on this news as of now. I have been tracking Bosch for few months now still I find it expensive. Same goes with Motherson and Sumi who did correct itself after the VW’s emission fiasco but still looked expensive to me.
The combustion of fossil fuels sch as petrol and diesel are the second largest source of CO2 emission ( combustion of fuels for producing electricity is culprit #1)
The above article will explain why older diesel cars with higher NOx - result in higher CO2 emissions.
Also Euro 6 emission norms for diesel specify NOx values that are about 25% higher than Euro 6 petrol vehicles.
In principle, if Electric Vehicles can achieve scale of economics, range and performance, and they are encouraged by successive governments over the coming decades, they have the potential to significantly dent ICE vehicle sales (both petrol and diesel)
The trend in developed countries is distinctly in favour of alternative fuel cars. This is indicated by the manner in which companies like Ford and GM are rushing to tie up with technology companies to get a head start in this field. As such the long term fate of IC engines is sealed- the question is how long will it take to reach to countries like India? Change over to alternative fuel engines will happen eventually - partly prodded by regulators but largely driven by consumer acceptance (the change from legacy landline telephony to mobile telephony happened entirely due to early, rapid and massive adoption by an expanded consumer base). But as investors we would be more concerned about the likely impact of these changes on the relevant stocks.
As such our discussion is for the time being focused on diesel cars which are under attack both by regulators and consumer aversion. When such major shifts occur, businesses with apparently large moats find themselves under siege. Stock prices are the first to react as doubts emerge about the long term trend, the growth slows, and turns into a decisively irreversible downward trend. The capital vanishes even before the business shifts. Capital markets are great at sniffing out these changes and drive down the price of incumbents.
Our discussion needs to cover:
which are the companies that will be affected by diesel ban
what will be the impact on sales of each company
how will their profitability get affected
what would be the change in their market cap as a result.
I will endeavour to collect the data and present it here for discussion. In the meantime if someone has any data on these, please share it.
