Auto majors allay fear over slowing EV adoption after tax cut for traditional cars

Automakers and dealers, however, say the recent softness reflects short-term volatility rather than a shift in consumer preference, arguing that EV adoption continues to rise as buyers look beyond upfront prices to overall ownership costs.

Data from the Federation of Automobile Dealers Association (Fada) data released on Tuesday showed EV penetration grew for two consecutive months after a dip in October, leading to fears that New Delhi’s move to cut tax on ICE vehicles could hurt EV penetration in the long run, as the fossil-fuelled ones were already much cheaper in the price-sensitive Indian market.

“Electric vehicle sales are here to stay. There was softening in the last few months, but penetration levels have grown in 2025. EV car penetration grew from 2.5% to nearly 4% last year," C.S. Vigneshwar, president of Fada, told Mint.

EV penetration rebounds

While EV penetration, the percentage of EVs of total passenger vehicle sales, in the car market fell from 5.14% in September to 3.26% in October, the number recouped to 3.75% in November and 3.94% in December, retail data released by Fada showed.

The dip in October had made some market observers note that consumer interest had softened in EVs after GST cuts narrowed the tax gap between ICE vehicles and EVs, making the former even more attractive for buyers. An EV passenger vehicle would typically cost ₹2,00,000-4,00,000 more.

In September, the government cut GST for petrol and diesel vehicles from the earlier rates of 28% on small cars and 45-50% on large cars to 18% and 40%, respectively. The tax rate for EVs remained at 5%.

Automakers stay bullish

Both Tata Motors Passenger Vehicles Ltd, Mahindra & Mahindra Ltd reiterated that there were no alarm bells for the EV vehicles' growth trajectory due to the reduction in prices of ICE vehicles, a position reiterated by the Fada chief.

During a press briefing in December, Tata Motors PV managing director and chief executive officer Shailesh Chandra said there was no cause for alarm for EV penetration for now even as GST cuts had boosted sales of ICE vehicles in the short-term.

“One year back, monthly EV industry volumes were around 7,500 units. Today, they are fluctuating between 16,000 and 18,000 units. That is the reference you should take," Chandra told reporters, adding that EVs' cost structure meant prices would continue to fall, while ICE vehicle prices would rise due to increasing regulations.

In absolute terms, electric passenger vehicle sales grew 77% to 176,538 units in calendar year 2025.

The Tata Motors MD reiterated the company’s earlier position that by 2030, the overall industry will see 15-20% penetration.

“It (increasing EV penetration) is more a question of participation of the top six players who really determine what the PV industry will be. So, it is about a self-reflection moment for all the companies to see how they want to participate," he said, adding that the company has demonstrated that even in present conditions, automakers can have more than 15% EV penetration.

While the government has targeted 30% EV penetration in passenger vehicles by 2030, carmakers have moderated their expectations to 15-20%.

Speaking on the sidelines of the launch of Mahindra XEV 9S in November, company’s executive director and chief executive Rajesh Jejurikar said the company hasn’t seen any recalibration on EV sales post the GST cuts, and it was too early to say if there was any adverse impact of the GST cuts on EVs.

“There was a pent-up demand of 30-40 days of ICE vehicles, which wasn’t there for EVs, as most people were clear that a change (in tax rates) was gonna happen there. We continue to remain excited about EVs, we continue to be excited about ICE and the overall sentiment in the Indian market," Jejurikar said.

Mahindra projected that the company’s overall portfolio could have up to 20-25% of sales coming from EVs. Experts say the trend has shown that the GST cut for ICE vehicles is expected to have only a limited impact on consumers in the long-term.

According to Anurag Singh, advisor at Primus Partners, the reduction in taxes has had a limited impact on purchasing decisions of consumers shifting away from ICE vehicles. “Indian consumers are highly TCO (total cost of ownership)-driven, quickly factoring in not just acquisition cost but also fuel savings, depreciation, maintenance, insurance, and long-term usability," he said.

“Directionally, the EV value proposition is improving, and penetration continues to rise. However, the pace of adoption is currently slower than earlier expectations, reflecting a more rational and cautious market rather than a reversal of the trend," he said.

Queries on the outlook for EVs sent to Maruti Suzuki and Hyundai Motor India remained unanswered until press time.