Cost-happy Mahindra not to sell BS-VI engines to rivals

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Utility vehicle heavyweight Mahindra & Mahindra (M&M) said it had successfully beaten the cost target for developing Bharat Stage VI (BS-VI) diesel engines by a significant margin.

This has prompted the Mumbai-based company’s Managing Director Pawan Goenka to challenge market leader Maruti Suzuki’s statement that diesel models will become unviable in BS-VI form.

Price difference

If M&M is able to launch diesel-powered BS-VI vehicles at a price lower than industry’s expectations after April 1, 2020, the company’s engines would attract peers as each company wants to offer diesel models at affordable rates.

But, Goenka does not want Mahindra to sell its engines to anybody just yet. When asked by Moneycontrol if M&M would be open to selling its engines to other companies, Goenka replied in the negative.

“In India, we have not reached the maturity to buy engine from a competitor. Engines are considered to be the core and pride of the company and we won’t sell it anyway,” Goenka said.

As per Maruti Suzuki (MSIL) officials, the price gap between petrol and diesel will widen significantly when the country embraces BS-VI, thereby disrupting the segment. Currently, diesel models are priced up to Rs 1 lakh higher than their petrol cousins. Post BS-VI, the difference will go up to Rs 2.5 lakh, as per MSIL.

But, Mahindra seems to be looking at things differently.

“The team at Mahindra has done a great job in controlling costs. My expectations of the delta cost increase was higher at 0.65-0.7. But I am proud to say that we have ended up at just 0.5x. We have exceeded the target we had set to ourselves,” added Goenka.

More than 90 percent of M&M’s passenger vehicle line-up is made of utility vehicles such as Scorpio, XUV500, TUV300, XUV300, Marazzo and Bolero. While some of these come powered with an option of petrol engine, the majority the demand is for the diesel variants.

For instance, about 75 percent of the XUV300 compact SUV sold by M&M is powered by diesel engines. The Scorpio and XUV500 do not have a petrol engine option as of now but will get them soon, assured M&M at a media briefing on June 3.

While significant changes to the vehicle body, engines, transmission and exhaust have resulted into an increase in weight of the vehicle, M&M said it is working on reducing weight.

“Due to BS-VI, the overall weight of the vehicles will go up by 50-150 kilograms. But, we have plans on reducing the overall weight of the vehicle and engine too. We hope that this will not impact vehicle performance,” added Goenka.

Peer buying

Buying engines from a competitor or buying them from a third party is not a new concept in India. Tata Motors and MG Motors are buying engines from Fiat Chrysler Automobiles India (FCA). Maruti Suzuki bought engines from FCA. Two decades ago, Tata Motors bought diesel engines from French carmaker Peugeot to power its pick-up truck.

Mercedes-Benz and BMW buy engines from Force Motors who assembles them in India after importing them in kits from Germany. Volkswagen Group is scouting for engine-buyers in India as a part of its revamp program.