Supply Crunch Hits A Booming CNG Auto Retrofit Market

Rakhu Pal, a Delhi-based dealer who installs compressed natural gas kits in cars, expected business to pick up, given the shift to cheaper gas as petrol and diesel prices spiked. Still, the surge in demand left him surprised.

Pal’s agency, BK Auto Gas, would retrofit CNG kits in 30-40 vehicles every month half a year ago, he told BloombergQuint over the phone. “That has now more than doubled to 80-90. It’s crazy the way people are increasingly looking at CNG as a substitute for petrol or diesel as fuel prices keep surging.”

The spike in demand, however, has caused a shortage of components including cylinders. That comes on top of a global chip crunch that has slowed production of cars to mobile phones.

In India, apart from a preference for personal mobility during the pandemic, a record-breaking rise in fuel costs is pushing car buyers towards cheaper and environment-friendly alternatives. Demand for natural gas-powered vehicles, however, was rising even before that.

Sales of CNG vehicles in Asia’s third-largest economy jumped nearly 22% in the last four years through FY21 to 1.9 lakh units, data by Crisil Ltd. showed. Maruti Suzuki India Ltd., with a 90% market share in company-fitted CNG vehicles, expects its sales in the segment to touch 3,00,000 units this year. An expanding network of CNG filling stations across the country is expected to work in its favour.

“CNG infrastructure has increased dramatically over the last few years,” Shashank Srivastava, executive director of sales and marketing at India’s largest carmaker, said. CNG stations, he said, have more than doubled to 3,300 in the last three years. “By 2025, the number of stations are expected to cross 10,000.”

Industry Playing Catch-Up

Bhoomi Auto Gas Pvt. in Jaipur, Rajasthan, forayed into aftermarket CNG three months ago, around the time the desert state’s capital started adding gas pumps. Demand surged almost immediately.

The industry is, however, finding it difficult to catch up with the sudden surge. Two large CNG cylinder makers, BloombergQuint spoke with, said demand outstrips supply by three to four times.

“We’re finding it difficult to commit to the rising demand. It’s coming from everywhere, be it aftermarket or original equipment makers,” Shariq Khan, head of sales and marketing at Euro India Cylinders Ltd., told BloombergQuint over the phone.

“Whatever we produce isn’t enough. There will be a decent shortfall,” the executive said.

A senior executive at Rama Cylinders Pvt. said there is a shortage of cylinders after raw material and freight costs rose. The requirement is two to three times the current capacity, the executive said.

And orders are at their highest ever. Rama Cylinders is supplying 5,000 cylinders a month against 2,000 cylinders a month, the executive cited earlier said, adding that the demand is twice what they can supply.

Khan of Euro India said nearly 70% of their demand is from the aftermarket.

Factory-fitted "CNG models aren’t easily available; the waiting period has gone bonkers and so have fuel prices", Hemal Thakkar, director at Crisil, said over the phone. As a result, Thakkar said, retrofitting kits is the easier way out to convert to CNG.

Srivastava of Maruti Suzuki said CNG vehicles, on average, have a waiting period of more than four months. For some variants of the Ertiga, that goes up to nearly a year, he said.

Things are no different at Hyundai Motor India Ltd., the nation’s second-largest carmaker, and the other carmaker to have CNG variants. Waiting periods in at least four Hyundai dealerships in Delhi is over four months. Half the bookings and inquiries in a day are of CNG variants, a Hyundai dealer in Delhi said on the condition of anonymity.

To be sure, the sudden surge amid supply crunch has made cylinders costlier by nearly 40% over the last year, Khan said. And kit prices have gone up from Rs 35,000 to Rs 50,000-55,000, Paul said.

Srivastava said while they’re also facing supply constraints to meet the increased demand, the global shortage of semiconductors is also weighing on CNG variants as they require additional controllers.

Threat Of Knock-Offs

There is a fear of black-marketing of refurbished cylinders and cheaper Chinese products. Deepak Acharya, owner of Bhoomi Auto Gas, said nearly 200 players have sprung up in the unorganised market to capture the increased demand for CNG kits in Jaipur alone.

“Refurbished, poor-quality Chinese imported cylinders are being sold to get more margins, and there’s no one to check it,” he said.

Paul said he is losing 30-40 customers a month on average as they shift to cheaper alternatives. “We know demand is here to stay, but the retrofitting industry needs to be organised and monitored to ensure unregistered players selling poor quality, unsafe kits are checked.”