MUMBAI: 25th April 2025 : Despite low EV adoption and slow sales of entry-level cars and sedans, India’s passenger vehicle industry is expected to reach a new high this fiscal year, with domestic and export volumes totalling 5 million units, according to ratings agency CRISIL’s latest advisory.
After doubling last year, albeit from a low base, the growth of electric vehicles (EVs) in India has slowed in the passenger car sector. Despite numerous new product introductions and a drop in battery prices, market penetration remains low, at 3-3.5 percent.
This is largely due to high costs, insufficient charging infrastructure, and range anxiety, all of which limit the market to urban consumers looking for a secondary vehicle.
According to Poonam Upadhyay, Director at Crisil Ratings, capital expenditure (capex) for passenger vehicles is expected to remain high at Rs 30,000 crore this fiscal year, as original equipment manufacturers (OEMs) improve their manufacturing capabilities, increase investments in EVs, and prioritise localisation and digital innovations despite a slowdown in demand growth.
According to Upadhyay, the entry of global premium EV brands like Tesla is expected to increase competition in the premium segment and shift consumer expectations across multiple categories, urging Indian OEMs to accelerate technological advancements.
According to CRISIL, the overall passenger vehicle industry will likely grow at a modest rate of 2-4% annually. Anuj Sethi, Senior Director at CRISIL Ratings, provided additional insights, stating that “The growth of passenger vehicles will moderate to 2% to 4% this fiscal year, but UVs are expected to maintain a growth rate of approximately 10%, supported by new launches.” UVs account for 68% to 70% of total volumes and the majority of upcoming models, indicating a structural shift towards premiumization. A recovery in rural areas, aided by an expected above-normal monsoon and a drop in interest rates, should boost demand for entry-level vehicles.’
Utility vehicles (UVs) are expected to drive volume growth this year, aided by new product launches, lower interest rates, increased adoption of compressed natural gas (CNG), and favourable rural conditions, according to CRISIL.
The industry is expected to uphold a healthy operating margin of 12-12.5%. As volume growth slows, OEMs will rely on premiumisation and an enhanced product mix to protect margins.
In terms of exports, CRISIL has indicated that the 25% tariff imposed by the US, effective June 2025, presents limited risk, as the US constitutes only about 1% of total passenger vehicle volumes.
OEMs can pivot to alternative markets such as Mexico, the Gulf countries, South Africa, and East Asia, though ongoing geopolitical tensions could weigh on exports’ momentum.
Despite falling volume growth and stable input prices, OEMs have hiked prices 3-4% to offset the rising cost of technology upgrades and regulatory compliance.¹. This, along with the better-priced UV mix, is expected to keep operating margin steady at 12-12.5%, and ensure healthy cash flow from operations, and afford flexibility to address capacity constraints and support new product rollouts, CRISIL has said
Going ahead, the pace of interest rate cuts and EV adoption, as well as potential supply shocks could impact the availability of chips and battery cells amid global tensions, and will, therefore, bear watching.
