Temporary Delhi diesel vehicle ban leaves automakers in dark, investors jittery

A nearly four-week ban on registering new diesel-powered vehicles in India's capital has confused automakers and investors, prompting concerns that efforts to battle Delhi's air pollution could derail the auto industry's tentative recovery.

India's top environmental court on Friday banned the registration of diesel vehicles in Delhi until Jan. 6 as the city experiences hazardous levels of pollution, in part due to diesel emissions. But the court's ruling gave little detail, sparking a sell-off in automakers' shares on Monday and industry frustration.

Shares in Tata Motors, India's second-biggest automaker by market value, fell as much as 4.6 per cent, while market top utility vehicle maker Mahindra & Mahindra's stock was down as much as 2.65 per cent, adding to losses on Friday after the ruling.

"If our vehicles are banned in the largest market in India (New Delhi), that is bound to have an impact on the bottom growth for us or anybody else for that matter," Pawan Goenka, an executive director at Mahindra told reporters on Saturday during a media conference call.

Delhi, labelled the world's most polluted city in a 2014 World Health Organization survey, alone makes up about 7 per cent of total Indian auto sales, Goenka said.

The ban by India's National Green Tribunal came a day before world leaders at the global climate summit in Paris struck a weekend deal to rein in rising emissions blamed for warming the planet.

The ruling can be challenged in a higher court. Diesel-powered cars are popular in India as the fuel is cheaper than petrol, prompting global carmakers to invest in strengthening their diesel car portfolio over the years.

But Delhi is working to shake off the most polluted city tag. It has already said it will restrict private cars circulating based on odd or even license plate numbers, from Jan. 1.

South Korea's Hyundai Motor joined Mahindra in saying the ruling created uncertainty on the status of cars sold but not registered. The Society of Indian Auto Manufacturers warned the move could derail an ongoing turnaround in car sales, which rose about 9 per cent to 1.8 million in April-November.

"The auto industry is capital-intensive and high-technology and requires a long-term road map with clear policies and regulation...otherwise it could impact the manufacturing sector," said Rakesh Srivastava, senior vice president, sales and marketing at Hyundai's Indian unit. About a third of cars sold by Hyundai in Delhi are powered by diesel engines, he said.