Lower Taxes on Conventional Fuels and Hybrids Spark SUV Boom; EV Sales Dip as Buyers Priorities Affordability Over Green Goals
Introduction
In a surprising twist to India’s electric mobility push, consumers largely stuck to petrol and diesel vehicles in 2025, parking ambitious EV plans following GST rate reductions on internal combustion engine (ICE) cars effective October. While total EV registrations rose 16% to 22.7 lakh units (including three-wheelers), market penetration in key two-wheeler (2W) and passenger vehicle (PV) segments declined post-reforms. Battery electric vehicle share in 2Ws fell to 6.3% for the year (from a Jan-Sep peak of 8.1%), and in PVs hovered around 4% (excluding hybrids), down from pre-cut levels of ~5%. The narrowed price gap small ICE cars now 10-12% cheaper—triggered a late-year ICE sales boom, pushing overall PV volumes to a record 4.5 million units.
The GST Trigger: Affordability Shift
The 56th GST Council meeting’s reforms, effective September 22, 2025, slashed rates on small petrol/diesel cars (≤1200cc/1500cc, ≤4m length) from 28% + cess (effective 29-31%) to 18%, and unified larger vehicles at 40%. EVs retained 5% GST, but the absolute price advantage for entry-level ICE models widened significantly.
This unleashed pent-up demand: October retail soared 40.5% YoY (PV ~557,000 units), November PV up 18.7% to 412,405, and December wholesales +26% to ~405,000. Small cars and sub-4m SUVs like Maruti Swift, Tata Punch saw 50%+ jumps in some months. Automakers passed on savings, with discounts amplifying the shift.
EV Penetration Takes a Hit
Pre-GST cut (Jan-Sep 2025), EV 2W penetration peaked at 8.1%; post-cut Dec quarter pulled yearly average to 6.3%. PV EVs (battery only) settled ~4%, below earlier 5% levels. Electric three-wheelers bucked the trend, rising from 12% to 18% penetration.
Total EV registrations: 22.7 lakh (+16% YoY from 19.5 lakh in 2024), led by 3Ws (~8 lakh) and 2Ws (12.8 lakh, +11%). PV EVs grew volumes but lost share amid 4.5 million total PV sales (+6-10.5%).
Analysts note: “GST cuts revived mass-market ICE demand in Tier-2/3 cities, narrowing EV affordability edge.” Year-end discounts on EVs (Mahindra, Tata, Hyundai) aimed to counter, but ICE resurgence dominated.
| Segment | 2024 Penetration | 2025 Jan-Sep Peak | 2025 Full Year |
|---|---|---|---|
| Electric 2W | 6% | 8.1% | 6.3% |
| Electric PV (BEV) | 2.5% | ~5% | ~4% |
| Electric 3W (ex-e-rick) | 12% | – | 18% |
Sources: Vahan, FADA, industry reports
Winners and Losers: ICE Revival, EV Pause
- ICE Surge: Maruti (1.84 million units), Mahindra SUVs (+18%), small cars rebounded 50% in Dec.
- EV Growth but Share Loss: Tata (highest EV volumes ~81,000), but market share dipped amid competition.
- Hybrids: Marginal relief, but not enough to offset pure EV slowdown.
Experts: “EV volumes grew robustly, but penetration paused as consumers prioritized practicality over green premiums post-tax shift.”
Outlook: Balanced Path Ahead
With overall auto sales hitting records (PV 4.5 million), the sector eyes low-single digit growth in 2026, driven by SUVs, rural recovery, and selective EV push. GST 2.0’s long-term impact may stabilize as charging infrastructure expands and battery costs fall.
Conclusion
2025’s GST cuts delivered affordability to millions opting for petrol-diesel cars, boosting volumes to records while temporarily shelving aggressive EV dreams in mass segments. Overall EV adoption grew volumes especially in 3Ws but market share in 2W/PV dipped, highlighting price sensitivity. As India balances green goals with economic realities, hybrids and infrastructure could bridge the gap. The road to 30% EV penetration by 2030 remains open, albeit with detours.
