India’s passenger vehicle (PV) industry is poised to achieve a historic milestone of five million cumulative units in FY26, according to a report by Crisil Ratings released on April 29, 2025. This volume includes both domestic sales and exports and reflects a continued upward trend for the fourth year in a row, even as annual growth slows to 2-4%, down from the remarkable 25% spike seen in FY23 during the post-pandemic recovery.

The data from Crisil underscores a maturing market, one that is stabilising after the high-growth years triggered by a rebound in demand and production post-COVID. While growth momentum has eased, the underlying demand fundamentals remain strong, supported by multiple factors such as premiumisation, utility vehicle (UV) demand, rural recovery, and efforts to diversify export markets.

Domestic Market Still Leads, Exports Face Global Headwinds

In FY24, the domestic market contributed nearly 85% of total PV volumes, with exports making up the remaining 15%. This trend is expected to persist in FY26 as well. Export growth, however, is anticipated to moderate to 5-7% in FY26, largely due to global economic challenges and geopolitical uncertainties. While the upcoming 25% US tariff on vehicle imports may not drastically affect Indian automakers due to their relatively smaller export share to the US, the industry is eyeing alternative export markets like Mexico, Gulf countries, and South Africa to mitigate risks.

EV Segment Growth Slows Despite New Launches

Despite several new electric vehicle (EV) launches and a decline in battery prices, the EV penetration in India’s PV market remains at a modest 3-3.5%. The slower adoption rate is attributed to a combination of factors, such as high vehicle prices, limited availability of charging infrastructure, and range anxiety, especially for long-distance usage. Additionally, the EV segment is currently limited to urban consumers, with most buyers opting for EVs as second vehicles, not as their primary mode of transport.

The report highlighted that while global EV leaders like Tesla are likely to enter the Indian market, their impact may be limited due to high import tariffs. Tesla’s entry is expected to intensify competition in the premium EV space, but this segment constitutes less than 10% of overall PV volumes, thus capping its potential influence on the broader market.

Utility Vehicles Dominate, Premiumisation Continues

One of the most prominent trends in India’s PV industry continues to be the growth in utility vehicles (UVs), which now make up nearly 68-70% of all PV sales. Crisil predicts that UVs will continue to grow at around 10% annually, driven by frequent new model launches, high consumer preference for larger vehicles, and improved road infrastructure that supports bigger cars.

Further, the premiumisation trend in the PV market is structural, not cyclical, Crisil emphasized. Consumers are increasingly leaning toward vehicles with advanced features, superior safety, and greater comfort, shifting the market profile steadily upwards. This trend is also reflected in the growth of mid-size and larger UVs, which often come with high-end specifications.

Rural Demand May Revive Entry-Level Car Segment

A key factor that could drive demand in the entry-level car segment is rural recovery. Crisil projects a potential boost in rural sentiment due to above-normal monsoon forecasts and anticipated interest rate cuts, which could lead to higher disposable incomes and improved vehicle affordability. This is especially important as rural markets account for a significant portion of entry-level PV sales in India.

After lagging in the past two years, the rural segment could offer the next leg of growth for manufacturers focused on compact cars, affordable hatchbacks, and small utility vehicles. Government support schemes and targeted subsidies, if announced, could further enhance the demand outlook in these regions.

Competitive Landscape and Industry Outlook

The Indian PV industry remains highly competitive, with global OEMs, domestic auto giants, and EV startups all vying for consumer attention. The premium segment, though smaller in size, is expected to see intensified competition with players like Hyundai, Kia, Toyota, Tata Motors, and now Tesla entering or expanding their footprint.

Looking forward, FY26 is set to be a landmark year, with volumes expected to cross the 5 million-unit threshold for the first time. While the growth rate is moderate compared to the pandemic recovery years, the market is moving toward a more balanced, resilient phase, characterised by a shift in consumer preference, greater product diversification, and a gradual transition to electric mobility.

Crisil's report suggests that the structural tailwinds—including urbanisation, rising disposable incomes, and government support for cleaner transport—will continue to support the Indian PV industry in the long term. However, short-term challenges like global trade issues, EV adoption hurdles, and input cost fluctuations will require careful navigation.

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