The Effects of BS 6 and CO Regulations in India: Automotive

AUTOMOTIVE
The effects of BS 6 and

CO2 regulations in India
19 October 2016 | Tokyo
Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

+91 88610 77100, suraj.ghosh@ihsmarkit.com
© 2016 IHS Markit. All Rights Reserved.
BS 6 & CO2 Regulations / October 2016
Contents
AGENDA 3 CONSUMER EVOLUTION
Petrol vs Diesel 18
PRESENTERS 3 Why diesel is losing favor? 19-21
Success of mild-hybrids 22-23
INTRODUCTION
Potential of mild-hybrids 24
BS 6 Emission Norm 4
Auto-shifts 25-26
CO2 Regulation 5
FAME 6-7
BACKGROUND 8 IMPLEMENTATION CHALLENGES

OEMs 28
OEMS’ POWERTRAIN STRATEGY Government 29
Steps 11 Oil companies 30-31
The key players 12-13 Conclusion 32
Cost of BS6 compliance 14 Appendix
Maruti Suzuki 15-16
© 2016 IHS Markit 2

Introduction

+91 8861077100, suraj.ghosh@ihsmarkit.com

Automotive Conference – Tokyo | October 2016
BS 6 - Emission Norms Schedule

Schedule
Region/Year 2010 2016 2017 2019 2020 2022
Select Cities
BS IV
BS V BS VI
Rest of India
BS III BS IV
New Schedule
Across India BS IV BS VI
Pollutants
HC +
HC
NOx
NOx NOx
PN PM

CO2 Regulations – CAFE Norms

CAFE Targets : Starting from 1st April 2017
7
Fleet Target
17% stricter @ 1000kg
6
Phase I Phase II
(FY2017- (FY2021
FY2017-FY2021
5 2021) onwards)
Averaged Fuel Economy
130 g/km 113 g/km

4
FY2022 onwards

3
Consta FY 2017 FY 2022
(L/100km)
2 nts to FY 2021 onwards

a 0.0024 0.002
1 b 1037 1145
c 5.4922 4.7694
0
500 600 700 800 900 1000 1100 1200 1300 1400 1500
FY 2017-18 to 2021-22 FY 2022-23 onwards Petrol

Diesel Diesel with Mild
Mild-hybrid
Averaged unladen mass (kg)

FAME
Faster Adoption and Manufacture of Electric Vehicles, based on the NEMMP 2020:
 Phase I (FY2015-FY2017) 170 million USD.

 55 million USD for 1st year and 115 million USD for 2nd year.
The investment is further allocated into sub-categories, arranged in order of share of the
allocation:
 Demand incentives
 Development of technology platform & Testing infra
 Pilot projects
 Charging infra
 IEC/Operations
 Phase II (FY2018-FY2021) 200 million USD.

 Demand incentives IHS estimate
 Charging infra
© 2016 IHS Markit IEC: Information, Education and Communication 6

FAME
Tax/Incentives ₹10000~$150~¥15100
VEHICLE CATEGORY EXCISE Segment Incentive (₹)
DUTY
Small cars (Length < 4m ) 12.50% Length < 4m Level 1 Level 2
Length >4m but engine capacity 24% (P<1200cc/D<1500cc)
less than 1500cc
Mild HEV (Conventional battery) 13000 16000
Length >4m and engine capacity 27%
Mild HEV (Advanced battery) 19000 23000
more than 1500cc
Length > 4m Level 1 Level 2
SUVs/MUVs (length >4m, engine 30%
capacity >1500cc and Ground Mild HEV (Conventional battery) 11000 13000
clearance >170mm)
Hybrid cars 12.50% Mild HEV (Advanced battery) 20000 24000
Conventional battery – Lead Acid type Advanced battery – All others

Background


Background
1. Air Quality
NO2 PM10
% of Location
% of Location
Source: CPCB
Low Moderate High Critical
2. India’s CO2 Pledge: 20-25% reduction by 2020; 30% by 2030 compared to 2005 levels as
base .
3. Overdependence on imported oil.
• About 80% of India’s crude demand is met by imports.
4. Government’s aim for alignment with mature markets’ policies.
5. Pressure from ‘green’ activists/NGOs.

OEMs’ Powertrain Strategy


OEMs’ Powertrain Strategy - Steps

• Emission • Electrification
• Phase out reduction

• Fuel type legacy strategy
strategy platforms. April 2022
• Downsizing CO2
April 2020
• Mild-hybrids Regulation
BS 6
April 2017 Phase II
Across India
BS 4
April 2017
Across India
CO2
Regulation
Phase I
Investment

OEMs’ Powertrain Strategy – The key players

70%
40%
60%
50% 30%
40%
30% 20%
20%
10% 10%
0%
2016 2018 2020 2022 2025 0%
2016 2018 2020 2022 2025
Auto-shift Electrification GDI Auto-shift Electrification GDI
30% 80%
25% Tata 70% Mahindra
60%
20%
50%
15% 40%
10% 30%
20%
5%
10%
0% 0%
2016 2018 2020 2022 2025 2016 2018 2020 2022 2025
Electrification = Stop/Start + Mild-Hybrid + Full-Hybrid

OEMs’ Powertrain Strategy – The key players

100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Diesel-ICE Diesel-Electrification GAS ALT Fuel Diesel-ICE Diesel-Electrification GAS ALT Fuel

OEMs’ Powertrain Strategy – Cost of BS 6 compliance

Cost Impact – IHS Estimate ₹10000~$150~¥15100
Engine Vol In-cylinder Cost/engine
PM Reduction NOx Reduction
(liter) Measures (₹)
Gasoline
<1.2 Optimized cat/GPF* None/EGR* Low/Mild 0 – 10k
1.2 – 2.0 Optimized cat/GPF* EGR Mild 5k – 15k
2.0 – 2.5 Optimized cat/GPF* EGR Mild 10k – 20k
>2.5 Optimized cat/GPF* EGR Mild 10k – 20k
Diesel
<1.5 DPF LNT Mild 20k – 30k
1.5 – 2.0 DPF LNT/SCR Mild to Strong 30k – 50k
2.0 – 2.5 DPF SCR Strong 50k – 70k
2.5 – 3.0 DPF SCR Strong 70k – 100k
>3.0 DPF SCR Strong 70k – 100k
© 2016 IHS Markit * Required for GDI engines 14

OEMs’ Powertrain Strategy – Why Maruti Suzuki continues to

lead?
Market Share (LV<3.5T, Category: Cars)
48.6% 47.2% Fourth pillar
50%
45.9%
45%
Three main pillars
36.8%
40%
35%
30%
25%
Fuel economy Affordable
technology
20%
15%
10% Affordability Low

5% Running-cost
0%
2000 2002 2004 2006 2008 2010 2012 2014 2015
CY
OEMs’ Powertrain Strategy – Why Maruti Suzuki continues to

lead?
Annual Sales (CY) Mild-hybrid
2015
2014
2013
2012 AMT Ciaz
2011
2010
2009
Notch-back segment
2008
2007 Celerio
2006
2005 Small diesel engine
2004
2003
2002
2001
2000 Millions
0 0.25 0.5 0.75 1 1.25 Swift Dzire

Swift
Customer Evolution


Consumer Evolution
The Petrol vs Diesel Scenario
CO2
70%
BS6 2.5
BS6
India Vehicle Production (mill.)

Regulation
60%
2
50%
40% 1.5
30%
1
20%
0.5
10%
0% 0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
DIESEL Electricity GAS ALT
Diesel-Electrified Diesel-ICE
• Diesel share in PV segment will reduce to about 35% by 2020.

• Correspondingly, petrol share will increase to about 60%.
• Almost 40% of diesel cars will have some sort of electrification.
• Pre-buy effect expected in 2019.
Consumer Evolution – Why diesel car is losing favor?

Gap in Initial price & Fuel price
16 80 100%
Petrol Diesel Diesel-BS6 Petrol-BS6 %age Petrol Diesel
90%
14 70
80%
12 60
70%
10 50
60%
%age
INR
8 40 50%
6 40%
30
30%
4 20
20%
2 10
10%
0 0 0%
• Earlier the savings made on fuel expenditure justified higher initial price.
• Diesel cars will only get more expensive post-BS6.
• Subsidy on diesel fuel may never be back.

• Uncertainty around diesel cars.
• Vilified by National Green Tribunal (NGT). Aug 2016
• Judicial intervention.
Dec 2015
• Discouraged by government.
Ban lifted with
1% additional
Supreme Green Tax
2014 Court bans
 Most impact on SUVs & luxury registration
cars. of diesel
NGT
 NCR contributes to about vehicles
activity
22-25% sales of SUVs & about >2000cc in
begins
30% sales of luxury cars. NCR


• Resale value affected.
Petrol
• Uncertainty over future court rulings.
• More options in petrol vehicles. • Mahindra to introduce petrol engines

across its portfolio.
• Maruti Suzuki will introduce petrol

engine in its compact-SUV, Brezza.
377 KB15, K10C-GDI M-SG (1.2L, 1.5L, 2.0L)
• Luxury makers following similar path.
• Tata and Toyota are also expected to

introduce petrol engines in their UVs.
Dragon New L S1G
(1.2L & 1.5L) New K S2G
Consumer Evolution – Acceptability of xEVs in India?
BEVs
Legislations
Full-Hybrids
Mild-Hybrids
Oil price BEVs
Full-Hybrids
Mild-Hybrids
Charging infra BEVs
Full-Hybrids
Mild-Hybrids
Incentives

Consumer Evolution – Success of Mild-hybrids in India

• Primary drivers: Monthly Sales
Apr-16 City Ciaz
• FAME incentives. Mar-16
• Affordability. Feb-16
• Positive effect on TCO. Jan-16
Dec-15
• Odd-even rule in National Capital Region (NCR).
Nov-15
• Cover from “abrupt” judicial interventions. Oct-15
Sep-15
Aug-15
INR 0.9 million
Jul-15
Lower tax Jun-15
28.09kmpl May-15
Apr-15
Mar-15
Customer incentive
INR 11.2 million Feb-15
Jan-15
Dec-14
Higher fuel economy 26.0kmpl
Nov-14
Oct-14
0 2 4 6 8 10
Thousands

Consumer Evolution – Potential for Mild-hybrids in India

India Vehicle Production (million)
4
3.5
3
2.5
2
1.5
1
0.5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Base case Best case
• Factors for “Best Case”:  Affordability vis-a-vis full-hybrids/BEVs.
 Continuance of FAME incentives.  Automakers’ focus.
 Legislative push.  Escape route for diesel cars.

Consumer Evolution – Indian customer ‘tasting’ auto-shift

Manual vs Auto 1.8
8 25%

1.6
7
20% 1.4
6
1.2
5 15%
1
4
0.8
3 10%
0.6
2
5% 0.4
1
0.2
0 0%
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2018 2020 2022 2025
Auto-shifts Manual Auto-shifts Share AMT Automatic CVT DCT
• Affordable price. • Increasing ‘first-time’ drivers.

• Fuel economy at par with MTs. • Increasing female drivers.
• Urban traffic congestion.

Consumer Evolution – Indian customer tasting auto-shift

100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
2016 2018 2020 2022 2025 2016 2018 2020 2022 2025
AMT Automatic CVT DCT A-Segment AMT Automatic CVT DCT B-Segment
100% 100%
80% 80%
60% 60%
40% 40%
20%
20%
0%
2016 2018 2020 2022 2025 0%
2016 2018 2020 2022 2025
AMT Automatic CVT DCT C-Segment Automatic CVT DCT D-Segment

Implementation Challenges


Implementation Challenges – OEMs

OEMs:
Opportunity
Realign After- Remain Export to

Technology mature
Product treatment cost-
upgrade markets
mix technology effective
Global OEMs Domestic OEMs

Huge opportunity for global
Technology Indigenize New
suppliers of fuel injection
development
systems, after-treatment
Suppliers Developed New devices, EGR systems, ISG
collaboration systems etc.
Investment Localization New set-up

Implementation Challenges – Government

Test Cycle Urea/AUS32 Ground execution
Finalize, Clarity & Supply & Refill network Awareness,
Strict implementation Education,
Execution
MIDC WLTC
RDE – Under discussion, implementation?

Implementation Challenges – Oil Companies
FCC Naphtha Hydro-treating for Investments of about INR

ULSG & Distillate Hydro-treating 40000 Cr (USD 6 billion)
for ULSD. required.
Expand throughput capacity of These are “stay-in-business”
existing processes. type investments.
Retrofit existing units.
Proper mechanism needs to be

in place for smooth transition
from BS4 to BS 6 in 3 years.
Fuel availability across

country.

Implementation Challenges – Oil Companies

Refineries & Capacities
Capacity (MMTPA)
Companies
As on 1st April 2015
IOCL 54.2
HPCL 14.8
BPCL 21.5
CPCL 11.5
NRL, Numaligarh 3.0
ONGC, Tatipaka 0.07
MRPL, Mangalore 15.0
BPC, BORL-Bina 6.0
HMEL,GGSR 9.0
RIL, Jamnagar 60.0
EOL, Jamnagar 20.0
Total 215.1
© 2016 IHS Markit Source: PPAC 31

Key takeaway
• Growth of petrol vehicles.
• Growth of auto-shift transmissions. • Huge

investments
• Wider adoption of mild-hybrids. required.
Opportunities
Challenges
• Broadening of export markets. • Political & Judicial
uncertainty.
• Huge opportunity for • Uncertainty about regulations.
component suppliers.
• Readiness of oil companies to supply fuel.
• Attain better air
quality levels.
• Impact of price rise on sales.
• Domestic players might struggle initially.

Appendix
Pollutants table
Pollutants CO HC HC + NOx NOx PM PN

Units mg/km #/km
Gasoline
BS III 2300 200 - 150 - -
BS IV 1000 100 - 80 - -
BS V 1000 100 - 60 4.5 -
BS VI 1000 100 - 60 4.5 6x10^11*
Diesel
BS III 640-950 - 560-860 500-780 0.05-0.10 -
BS IV 500 - 300 250 25 -
BS V 500 - 230 180 4.5 -
BS VI 500 - 170 80 4.5 6x10^11
*Applicable only to GDI engines 33
© 2016 IHS Markit
Appendix
Incentives
Segment Incentive (₹)
Level 1 Level 2
Length < 4m Strong HEV (Advanced 59000 71000
(P<1200cc/D<1500cc) battery)
Plug-in HEV (Advanced 98000 118000
battery)
BEV (Advanced battery) 76000 124000
Length > 4m Strong HEV (Advanced 58000 70000
battery)
Plug-in HEV (Advanced 98000 118000
battery)
BEV (Advanced battery) 60000 138000

Appendix
Definition of Level1 and Level2
Mild-Hybrid Strong-Hybrid PHEV
Level 1 Level 2 Level 1 Level 2 Level 1 Level 2

Fuel Economy
Improvement Ratio 10% 15% 20% 30% 33% 50%
BEVs
Level 1 Level 2
Electric Range 70km 105km

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AUTOMOTIVE

The effects of BS 6 and

Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

BACKGROUND 8 IMPLEMENTATION CHALLENGES

© 2016 IHS Markit 2

Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

© 2016 IHS Markit 3

BS 6 - Emission Norms Schedule

© 2016 IHS Markit 4

CO2 Regulations – CAFE Norms

130 g/km 113 g/km

2 nts to FY 2021 onwards

FY 2017-18 to 2021-22 FY 2022-23 onwards Petrol

Averaged unladen mass (kg)

© 2016 IHS Markit 5

 Phase I (FY2015-FY2017) 170 million USD.

 Phase II (FY2018-FY2021) 200 million USD.

© 2016 IHS Markit IEC: Information, Education and Communication 6

Conventional battery – Lead Acid type Advanced battery – All others

© 2016 IHS Markit 7

Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

© 2016 IHS Markit 8

© 2016 IHS Markit 9

OEMs’ Powertrain Strategy

Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

© 2016 IHS Markit 10

OEMs’ Powertrain Strategy - Steps

• Phase out reduction

© 2016 IHS Markit 11

OEMs’ Powertrain Strategy – The key players

Electrification = Stop/Start + Mild-Hybrid + Full-Hybrid

OEMs’ Powertrain Strategy – The key players

© 2016 IHS Markit 13

OEMs’ Powertrain Strategy – Cost of BS 6 compliance

1.2 – 2.0 Optimized cat/GPF* EGR Mild 5k – 15k

2.0 – 2.5 Optimized cat/GPF* EGR Mild 10k – 20k

>2.5 Optimized cat/GPF* EGR Mild 10k – 20k

© 2016 IHS Markit * Required for GDI engines 14

OEMs’ Powertrain Strategy – Why Maruti Suzuki continues to

10% Affordability Low

OEMs’ Powertrain Strategy – Why Maruti Suzuki continues to

0 0.25 0.5 0.75 1 1.25 Swift Dzire

Suraj Ghosh, Manager, South Asia Powertrain Forecasts,

© 2016 IHS Markit 17

India Vehicle Production (mill.)

• Diesel share in PV segment will reduce to about 35% by 2020.

Consumer Evolution – Why diesel car is losing favor?

Consumer Evolution – Why diesel car is losing favor?

• Vilified by National Green Tribunal (NGT). Aug 2016

© 2016 IHS Markit 20

Consumer Evolution – Why diesel car is losing favor?

• More options in petrol vehicles. • Mahindra to introduce petrol engines

• Maruti Suzuki will introduce petrol

• Tata and Toyota are also expected to

Consumer Evolution – Acceptability of xEVs in India?

© 2016 IHS Markit 22

Consumer Evolution – Success of Mild-hybrids in India

© 2016 IHS Markit 23

Consumer Evolution – Potential for Mild-hybrids in India

Base case Best case

• Factors for “Best Case”:  Affordability vis-a-vis full-hybrids/BEVs.

 Continuance of FAME incentives.  Automakers’ focus.

 Legislative push.  Escape route for diesel cars.