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Passenger vehicle volume driving towards fourth consecutive peak: CRISIL
Industry News- Apr 25,25
The entry of global premium EV models, including Tesla would intensify competition in the premium segment, which accounts for less than 10% of the overall volume, and will likely reset consumer expectations across categories, pushing Indian OEMs to accelerate technology upgrades.
India’s passenger vehicle (PV) industry is set to scale a fresh high this fiscal with domestic and export volume cumulatively crossing 5 million units even as the annual growth rate slows to 2-4%. This marks the fourth consecutive year of record sales, although momentum has significantly eased from the 25% surge in fiscal 2023 after the pandemic.
Utility vehicles (UVs) will drive volume growth this fiscal, aided by new launches, easing interest rates, rising compressed natural gas (CNG) adoption and rural tailwinds. That said, gains will be capped by weak adoption of electric vehicles (EV) and sluggish sales of entry-level cars and sedans.
As volume growth slows, original equipment manufacturers (OEMs) will rely on premiumisation and better product mix to protect margins. Softer input costs, better utilisation and price hikes are likely to partly offset rising regulatory compliance costs, which will help maintain operating margin for the industry at 12-12.5% this fiscal.
Healthy cash flows and robust cash surplus will enable OEMs to fund their high capex comfortably, while keeping their balance sheets strong and credit profiles stable.
A Crisil Ratings’ analysis of six PV OEMs, accounting for 90% of the market, indicates as much. The domestic market accounted for 85% of total volume last fiscal, with exports accounting for the rest.
Anuj Sethi, Senior Director, Crisil Ratings says, “PV growth will moderate to 2-4% this fiscal, but UVs will continue to cruise with 10% growth, supported by new launches. With UVs contributing 68-70% of volumes and bulk of upcoming models, the shift toward premiumisation is structural. Rural recovery, expected from likely above-normal monsoon and reduction in interest rates, should improve demand for entry-level cars.”
Fuel mix is also evolving rapidly. CNG-powered PVs are gathering pace, with their share likely reaching 15% this fiscal owing to low running costs and a fast-expanding network of 7,000+ refuelling stations.
Meanwhile, growth in electric vehicles (EVs) has slowed after doubling last year, but on a low base. Despite a flurry of launches and declining battery costs, penetration is seen moderate at 3-3.5%, weighed down by high prices, modest charging infrastructure and range anxiety, restricting the market to urban users as a second car option.
PV export growth is likely to moderate to 5-7% in fiscal 2026, down by a third, amid global headwinds. The 25% US tariff, effective June 2025, poses limited risk as the US forms just 1% of total PV 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 rising cost of technology upgrades and regulatory compliance1. 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.
Poonam Upadhyay, Director, Crisil Ratings says, “PV capex is expected to stay elevated at Rs 300 billion this fiscal as OEMs ramp up capacity, accelerate EV investments, and push localisation and digital upgrades despite slowing demand growth. However, this high capex remains sustainable, backed by strong internal accruals and cash surplus, with capex-to-Ebitda2 steady at 0.5x.”
The entry of global premium EV models, including Tesla would intensify competition in the premium segment, which accounts for less than 10% of the overall volume, and will likely reset consumer expectations across categories, pushing Indian OEMs to accelerate technology upgrades. That said, the current high tariffs will limit imports.
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.
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