Share of CNG, EVs and hybrid vehicles likely to reach 30% of total auto sales in 5 years: Icra

CNG, EVs and hybrid vehicles may grab up to 30 per cent share in total auto sales in next five years even as petrol cars are likely to dominate passenger vehicle volumes in medium-term, a report said on Tuesday. Demand for Electric Vehicles (EVs) has increased exponentially in the last two years with the government's push, increasing awareness, and new launches, domestic rating agency Icra said in its report.

However, the share of EVs in the overall PV (passenger vehicle) industry remains low, at 1 per cent currently, it stated. On the other hand, CNG vehicles have also gained prominence in recent years, aided by favourable running costs, improving penetration of CNG dispensing stations across the country, and enhanced product offerings by OEMs, Icra said and added, lower emissions in CNG vehicles would also help OEMs (original equipment manufacturers) comply with the impending Corporate Average Fuel Economy (CAFE) norms.

Noting that a cohesive approach from all stakeholders is imperative to facilitate the E20 (petrol blended with 20 per cent ethanol) transition within the targeted timelines, the ratings agency said auto OEMs are, however, unlikely to face major challenges to comply with proposed ethanol blending norms.

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Ethanol blending would reduce vehicular emissions, strengthen energy security, help reduce oil imports and conserve forex reserves, as per Icra.

Ethanol blending in petrol has been gradually increasing in the last several years, and India achieved 10 per cent ethanol blending in 2022, according to Icra.

Further, the central government has advanced its target for E20 implementation to 2025 from 2030 earlier.

"We expect the proportion of CNG, EVs, and hybrid vehicles to increase to 20-30 per cent of new vehicle sales in the next five years. However, petrol-based vehicles will likely account for a significant portion of new PV sales over the medium-term," said Shamsher Dewan, Senior Vice President at Icra.

This makes it important to reduce emissions from petrol-based vehicles to meet the CAFE norms and start the trajectory towards achieving carbon neutrality over the medium-to-long-term, besides promotion through the adoption of alternative powertrains, including EVs and hybrids, he added.

Making adequate ethanol available pan-India and addressing portability challenges would be imperative, given that ethanol production is currently concentrated in select states such as Uttar Pradesh, Karnataka, and Maharashtra, owing to feedstock availability, according to the ratings agency.

It, however, added that the government has been providing relatively faster environmental clearances and financial assistance in the form of interest subvention to facilitate capacity addition and ensure adequate ethanol availability for a seamless transition.

"Icra believes that the readiness of the auto industry and the OEMs to meet E20 blending norms is unlikely to be a major challenge. No major design changes are required from a vehicle standpoint except material recalibration, and the impact on the vehicle cost is expected to be less than 1 per cent in the case of passenger vehicles and about 2-3 per cent in the case of two-wheelers," added Dewan.

While no major capex is envisaged, changes in engine designs and after-treatment systems apart from the material selection will be key to meeting the norms, it said.

According to Icra, loss of fuel efficiency is expected as vehicles transition from the E10 to E20 compliant design, and this would increase the total cost of ownership. However, OEMs are looking at technological improvements like light-weighting to offset the impact, it stated.