GST Cuts for Petrol Cars Lead to Sharp Drop in Electric Vehicle Market Share in India

In October, the overall market share of electric vehicles (EVs) in India reached its lowest point for the financial year. Electric two-wheelers' share dropped from 8.09% in September to 4.56% in October, and electric four-wheelers fell from 5.12% to 3.24%, according to data from the Federation of Automobile Dealers Associations (Fada). This contrasts with the significant increase in the share of internal combustion engine (ICE) vehicles, which rose from 91.71% to 95.31% for two-wheelers and from 65.61% to 68.1% for four-wheelers in the same period.

The primary driver for this shift was the Goods and Services Tax (GST) Council's decision in September to cut taxes on many categories of ICE two-wheelers and four-wheelers from 28% to 18%. Since EVs already had a low GST rate of 5%, they did not receive a tax break, significantly narrowing the price difference between EVs and ICE vehicles. This was further amplified by substantial festive season discounts offered by automobile companies.

Analysts, including those at Bernstein, noted that the GST cuts for ICE vehicles exacerbated challenges for EV makers, who were already dealing with a rare earth magnet crisis. Consumers showed softened interest in EVs as the price gap narrowed, leading to increased sales of traditional vehicles. Bernstein also mentioned that many manufacturers are moving towards ferrite-based motors to improve supply resilience.

However, some industry experts, like Fada president C.S. Vigneshwar and Ashim Sharma of Nomura Research Institute, suggest waiting for a few months to observe if the trend stabilizes. Sharma pointed out that the GST cuts broadened the market by attracting consumers in entry-level segments where EV options are limited, thus reducing the overall EV share even if absolute EV sales grew.

Tarun Mehta, CEO of Ather Energy, expressed confidence in the long-term value proposition of EVs, citing better performance, lower maintenance, and superior total cost of ownership (TCO) as fundamental strengths that will drive future growth.

Despite the dip in market share, overall vehicle sales, including both ICE and EV models, saw record numbers in October. Two-wheeler sales surged 52% year-on-year, while passenger vehicle sales rose 11%. In the electric segment, two-wheeler sales grew 6% and four-wheelers by 58%, though on a low base. The slower growth rates for EVs in October are a concern as India aims for 30% EV penetration by 2030. Ola Electric noted the industry is in a transition phase.

Upcoming EV launches from Mahindra & Mahindra and Maruti Suzuki are expected to influence the market dynamics in the coming months.

Impact This news directly impacts the Indian automotive sector by potentially slowing down the immediate adoption of electric vehicles due to the increased price competitiveness of traditional vehicles. Companies heavily invested in EV production may face short-term challenges, while manufacturers of ICE vehicles and their components could see a boost. The broader push towards EV goals by 2030 might require re-evaluation of incentives or market strategies. Impact Rating: 7/10

Difficult Terms: GST: Goods and Services Tax, a comprehensive indirect tax levied on the supply of goods and services in India. Fada: Federation of Automobile Dealers Associations, a prominent dealers' body in India. EVs: Electric Vehicles, vehicles that run on electricity stored in batteries. ICE: Internal Combustion Engine, a type of engine that burns fossil fuel to generate power. OEMs: Original Equipment Manufacturers, companies that manufacture products based on designs supplied by other companies. TCO: Total Cost of Ownership, a financial estimate intended to help buyers and owners determine the total cost of owning a product or service over its entire lifespan. y-o-y: Year-on-year, a comparison of current period data to the same period in the previous year.