India’s Auto Sector Shows Mixed Performance as Electric Vehicle Adoption Accelerates

India’s automotive sector recorded contrasting performance in the first quarter of FY2026, with traditional vehicle sales declining while electric vehicle adoption gained momentum across key segments, according to Deloitte India’s Wheelwatch Auto Sector Tracker released in July 2025.

Two-wheeler domestic sales fell 6.2 percent year-on-year during the quarter, totaling 4.7 million units. However, electric two-wheeler registrations increased 34 percent, pushing the segment’s electric vehicle penetration rate to 6.2 percent from 4.9 percent in the same period last year.

The motorcycle segment experienced the steepest decline, contracting 9.2 percent year-on-year, with commuter motorcycles dropping 10.4 percent. Executive motorcycles, typically purchased by aspiring middle-class buyers, also weakened significantly. In contrast, premium segments showed resilience, with sport and performance motorcycles growing 10.7 percent and luxury motorcycles rising 0.9 percent.

Passenger vehicle sales remained relatively flat with a 1.4 percent decline, but electric passenger vehicle registrations surged 75 percent during the same period. Electric vehicle penetration in the passenger vehicle segment reached 3.5 percent, up from 2 percent in the previous year.

Regional variations in electric vehicle adoption were pronounced. Kerala led two-wheeler electric vehicle penetration at 14.9 percent, more than double the national average. Karnataka maintained steady growth supported by original equipment manufacturers and urban demand. For passenger vehicles, Delhi, Karnataka, Tamil Nadu, Maharashtra, Gujarat, West Bengal, and Odisha each achieved penetration rates above 3.5 percent.

The data reveals a structural shift in consumer preferences, with entry-level demand facing pressure while premium and electric segments gain traction. Compact entry-level cars declined 7.7 percent, indicating weak rural demand and a shrinking first-time buyer base. Mid-size entry cars led market growth with 14.6 percent expansion, suggesting consumers are seeking value-upgraded vehicles.

Industry analysts attribute the divergent trends to an economy navigating uneven rural recovery and services-driven urban consumption patterns. The performance reflects changing mobility preferences in urban India, where consumers are increasingly gravitating toward sustainable transportation options and premium features.

Policy support continues to drive electric vehicle adoption. The Government of Maharashtra extended its Electric Vehicle Policy 2021 through March 2030, targeting 30 percent electric vehicle penetration by 2030. Madhya Pradesh notified its Electric Vehicle Policy 2025 in March, offering road tax exemptions and registration fee waivers to accelerate adoption.

The Centre’s Scheme to Promote Manufacturing of Electric Passenger Cars in India opened applications through October 2025, requiring eligible applicants to achieve minimum Domestic Value Add of 25 percent and 50 percent in phases. The scheme includes concessional duty rates for imported electric vehicles exceeding $35,000 in value.

The quarterly performance indicates that India’s automotive sector is undergoing fragmentation across income levels and geographical regions. While core rural segments face affordability pressures, premium and urban demand segments remain stable, with electric vehicle adoption advancing in states with established infrastructure and policy support.

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