Alternative-fuel vehicles account for 40% of car sales; EV demand surges amid higher fuel prices

Around 63% of EV sales in June came from the two-wheeler segment, while only around 10% came from four-wheelers, according to Federation of Automobile Dealers Associations data.

Alongside lower fuel costs, EVs also offer higher savings on maintenance and registration taxes, with many state governments offering concessions on EV registrations.

While hybrids also provide a viable eco-friendly option for customers, they rake up just one-fourth of the sales seen across EVs due to higher taxes and lower government incentives. Currently, a 5% goods and services tax (GST) is levied on EVs, while taxes on hybrids stretch up to 40-48%, similar to internal combustion engine (ICE) vehicles.

Concerns over rising fuel costs are the biggest driver of this sharp growth. Fuel prices at petrol pumps have risen by Rs 7-11 across cities since the West Asia war began in February. While EVs are more expensive than traditional ICE vehicles, reports have shown that they cost significantly less over the ownership period due to fuel savings.

Despite the relatively low density of charging stations, consumers are still opting for EVs. “There is no major issue with the charging infrastructure for now, as these EVs are mostly passenger vehicles that have parking at home where you can charge. And their driving range is not that long. That’s why it’s making sense for people to buy EVs over ICE,” said Ravi Gupta, analyst at InCred Capital.

Two-wheelers lead growth, capacity expansion

EV penetration rose to 7.5% in the passenger vehicle category in June from 4% as of the end of the January-March quarter, according to Nomura. This rise, just three months into FY27, is already more than the 160-basis-point year-on-year increase seen in FY26.

Tata Motors reported its highest-ever monthly EV sales in June, rising 183% year-on-year to nearly 15,000 units and outpacing the 67% growth seen in the passenger vehicle category.

Electric four-wheeler makers such as Tata Motors and Maruti Suzuki have also launched new EV models this year, with more in the pipeline.

“Most of the growth is through two-wheelers, which do not have range issues as they are not used inter-city. The batteries are good enough now for city purposes, lasting 4-5 days. Of course, with more charging stations, we will see EVs become popular in the smaller markets too,” an analyst tracking the sector at a domestic mutual fund said.

In the two-wheeler category, EV penetration rose to 10.6% in June from 7.7% at the end of the previous financial year.

Bajaj Auto saw its two-wheeler EV volumes grow around 70% compared with overall two-wheeler growth of 14%. TVS Motor’s electric two-wheeler business grew 86% in Q1, with management saying demand was shifting from early adopters to mainstream buyers.

Tata Motors remains the largest player in the electric passenger vehicle segment with around 40% market share, while TVS Motor and Bajaj Auto lead the electric two-wheeler market with around 25% each.

Auto companies have jumped on this demand for EVs, expanding manufacturing capacity and launching new models.

Bajaj Auto plans to raise Chetak production capacity from 50,000 units to 60,000 units a month, while TVS plans to expand electric two-wheeler capacity from 40,000 to 50,000 units a month and electric three-wheeler capacity from 20,000 to 30,000 units.

Improving charging infrastructure

While still at a nascent stage, improving EV charging infrastructure has also supported adoption. There are 52,718 public charging stations in the country, of which 16,561 are fast chargers for cars, according to the Press Information Bureau.

Although India has around 235 EVs per charger, compared with the global average of 6-20, coverage has been improving across tier-1 and tier-2 cities and highways, according to a May report by Meta Materials Circular Markets.

In addition to rising fuel costs, government policy has also played a role in driving EV adoption. The Faster Adoption and Manufacturing of Electric Vehicles (FAME) schemes, introduced in 2015, and the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM-E-Drive) scheme, launched in 2024, have provided incentives for EV buyers while supporting manufacturing and charging infrastructure development.

A study by the Council on Energy, Environment and Water (CEEW) last year estimated that electric four-wheelers deliver around 20% savings for personal owners over five to eight years and 35-40% savings for fleet operators despite higher upfront costs.

Rakesh Sharma, Executive Director of Bajaj Auto, said during the company’s post-Q1 earnings call that operating economics continued to drive EV adoption as consumers worried about rising fuel costs.

During the launch of Tata Sierra EV last month, Tata Motors MD and CEO Shailesh Chandra also said the West Asia crisis had accelerated customer acceptance of EVs.