From Maruti to Tata Motors, India's top carmakers are racing to meet CNG demand, but EVs and infra hurdles loom

Introduced in the late 1990s after the Supreme Court asked the Delhi government to find an alternative to petrol and diesel to control the choking air pollution, CNG has taken a while to gain popularity. Since it was friendly on the pocket, by the early 2000s, automakers started retrofitting CNG cylinders in the boots of diesel and petrol cars. But it still wouldn’t take off.

“There was only a limited amount of fuelling infrastructure that was available throughout the country, and you could obviously see huge lines of cars that used to gather around a CNG station to get the CNG refilled. An improvement in the infrastructure over time has aided the popularity of the powertrain,” says Rohan Kanwar Gupta, Vice President, Corporate Ratings at ratings agency ICRA.

In 2010, India’s biggest carmaker, Maruti Suzuki India Limited, took the plunge and introduced CNG in its entry-level Alto model, becoming the first domestic automobile manufacturer to introduce the CNG powertrain. As the infrastructure developed along with tighter emission norms, CNG started to find its footing in the burgeoning automotive industry.

Even so, CNG car sales languished between 2% and 4%, rising to a modest 6.6% in 2019. But then Covid-19 appears to have changed everything. Low operating costs of CNG vehicles lured customers as petrol and diesel prices soared because of supply disruptions after the Covid-induced lockdowns. A slight increase in fuelling stations helped, even as the shortage of charging infrastructure and higher upfront costs proved a roadblock for electric vehicles (EVs).

As a result, CNG car sales have shot through the roof. Per the government’s VAHAN database, 598,152 CNG cars were sold in FY24, a near 40% increase over the previous year. That momentum continued into Q1FY25 as CNG cars’ market share beat that of diesel for the first time at 18.3%, compared with 18% for the latter, according to the UK-headquartered data and analytics firm JATO Dynamics. And where demand has gone, supply has followed. The number of car models that are offering CNG variants has almost doubled between June 2022 and June 2024 from 13 to 24, per JATO Dynamics. Such has been the interest that a CNG-powered motorbike has also been launched.

But for CNG’s march to continue, many challenges need to be addressed, not least the limited CNG infrastructure. Plus, there’s the potential threat from EVs.

The Shift

For some automobile manufacturers, CNG has become the second-largest by sales volume in their portfolio after petrol. At Maruti Suzuki, which phased out diesel vehicles in 2019, the CNG portfolio is the second-largest segment after petrol by sales. The company aims to equalise its diesel market share with CNG and hybrid models even as the company plans to introduce electric vehicles by 2025. Notably, the sales of the company’s hybrids have remained lower than those of CNG.

For Tata Motors, the CNG portfolio raced ahead of its EV portfolio in Q1FY25. Its EV penetration remained steady at 12%. However, CNG penetration increased from 16% in FY24 to 22% in Q1FY25. “We expect to continue to build on these as new launches come through. So we’re quite happy with the CNG portfolio’s performance; it was also good from a profitability perspective,” says P.B. Balaji, Group CFO of Tata Motors.

As CNG adoption increases, original equipment manufacturers (OEMs) such as Maruti Suzuki, Tata Motors, and Hyundai are introducing more refined models as the technology improves.

“A lack of availability of the powertrain across popular models had also constrained volumes. OEMs were offering select models, which were largely present in the segment. Over time, the technology has gotten more refined, and OEMs have proceeded to launch more CNG variants,” notes ICRA’s Gupta.

For example, Maruti Suzuki forayed into the CNG segment with single-cylinder technology. Going ahead, the automobile manufacturer is working on an integrated design. R.C. Bhargava, Maruti Suzuki’s Chairman, says, “We were the first to start the production of CNG cars because they were more economical than petrol cars as well as environmentally cleaner. They suited users with limited incomes and also met environmental objectives. With the government giving high priority to building infrastructure for CNG distribution, the sale of CNG cars has been rising, and we expect to sell about 600,000 such cars this year.”

He believes that customers should be encouraged to buy cars that use strong hybrid technology, or CNG or ethanol and biogas, while the use of electric cars increases, and pure petrol and diesel car use should be minimised. “CNG cars are not as clean as hybrids but are better than petrol or diesel cars and also do not use oil,” he says. Maruti is the leader in the segment by quite a distance. In FY24, it accounted for a whopping 73% or about 173,000 of the 236,000 CNG cars sold, followed at a very distant second by Tata Motors at 15%. Maruti currently has 17 variants in its line-up.

Tata Motors stepped up its CNG game in 2022 by introducing advanced iCNG technology, which is currently offered in its entry-level cars. It was the first to introduce twin-cylinder technology and AMT (automated manual transmission) in the CNG segment.

Vinay Pant, Head of Marketing at Tata Motors Passenger Vehicles Ltd, says the introduction of twin-cylinder technology was a game changer. “This innovation not only enhanced the appeal of our vehicles but also attracted a broader spectrum of customers, including young buyers who value both cost efficiency and advanced features. We have expanded our product range to include CNG options across mid- to high-level variants,” says Pant.

The carmaker witnessed a 120% surge in CNG sales in FY24 over FY23, with its penetration in the segment increasing from 8% in FY23 to 15% in FY24.

Regulation Push

Despite a surge in CNG prices after Covid-19, the cost of ownership is still lower than for petrol and diesel. According to a report by Deloitte, CNG offers better mileage and costs about 40–50% less per km than petrol and diesel. Plus, carbon emissions are lower by about 5-10%.

“The running costs for a CNG car are relatively lower. Even as CNG prices have increased over the past couple of years, the total cost of ownership of a CNG car still works out favourably for consumers,” observes ICRA’s Gupta.

Delhi-based advocate Ravinder Kumar Gupta concurs. He notes that with his CNG car, his weekly travel expenses amount to just Rs 500, with a daily commute costing him around Rs 100. In contrast, using his petrol car would cost him between Rs 1,000 and Rs 2,000 per week on fuel and Rs 300 daily.

That brings us to the changes in the regulatory landscape that have helped CNG sales. In fact, CNG sales have come at the cost of diesel. Diesel vehicles’ market share plunged from 37% in FY18 to 18% in FY24. That’s because of stricter government norms. It introduced the CAFE (Corporate Average Fuel Efficiency/Economy) norms in 2018 to reduce fuel consumption and decrease carbon dioxide (CO2) emissions.

Then, in 2023, the government introduced updated guidelines for domestic gas pricing. According to the new rules, the price of natural gas has to be set at 10% of the monthly average price of the Indian crude oil basket.

Over the years, as fuel prices peaked, CNG became more attractive. But even when petrol and diesel prices were stable, stricter BSES (Bharat Stage Emission Standards) norms hit diesel sales. Petrol, though, continued its growth despite a small fall in market share. BSES, introduced in 2000, has undergone several revisions. In 2010, the government introduced Bharat Stage (BS) III standards; in 2017, BS IV was introduced; and BS VI in 2020. The government skipped BS V norms, citing the urgent need to bring carbon emissions down.

The latest iteration, BS VI that was introduced in 2020, requires all domestic manufacturers to cut carbon monoxide emissions and nitrogen oxides. Additionally, it introduced specific limits for hydrocarbon and particulate emissions, which were not defined in previous standards. The government is likely to roll out BS VII next year.

The transitions from BS III to IV and then to BS VI have led to the phasing out of several petrol and diesel vehicles. In 2022, the government allowed retrofitting of CNG kits as per BS VI norms, giving CNG a further boost.

Boosting Horsepower

CNG adoption might have seen a big rise in the recent past, but it is likely to hit a roadblock owing to supply constraints. The Deloitte report quoted earlier points out that the current number of CNG filling stations is insufficient to meet the demand, which is nearly three times higher than the available infrastructure. Moreover, as only a few states like Uttar Pradesh, Maharashtra, Gujarat, Haryana, and Madhya Pradesh, and Delhi NCR account for 80% of CNG stations, supply is highly skewed towards certain geographies.

“This fuel is not going to be available in abundance like petrol or diesel. Unlike petrol or diesel, the government is producing it on its own and putting [up] the distribution networks, so there’s going to be a limit for that,” notes Rajeev Singh, Director, Deloitte.

Another problem carmakers have to solve is intrinsic to CNG: it is a fuel of low pick-up and it provides less torque and horsepower. That’s perhaps why CNG models are popular in the small car segment or SUVs priced between Rs 8 lakh and Rs 10 lakh. Those looking to buy premium vehicles priced above Rs 15 lakh are very unlikely to look at CNG for those same reasons.

Singh of Deloitte expects the share of factory-fitted CNG cars to stabilise at 20-22% by FY30.

There is, of course, one big looming threat on the horizon for CNG and other fuels: EVs. Gupta of ICRA highlights that CNG adoption will be influenced by the rate of EV adoption and inflation. A faster adoption of EVs could potentially limit the growth of CNG vehicles.

For now, the CNG party is well and truly underway.

@OrielAstha11