Passenger Vehicle Sales Poised for Historic Surge in FY26, Despite Slowing Growth: CRISIL

India’s Passenger Vehicle (PV) market is poised to scale a new peak this fiscal, with combined domestic and export volumes expected to cross 5 million units, according to CRISIL Ratings. This comes even as the annual growth rate has slow to 2–4 per cent in FY25. 

Despite the softening pace of sales, automakers have raised vehicle prices by 3-4 per cent this fiscal to offset rising compliance and technology costs. Supported by a shift towards higher-priced Utility Vehicles (UVs) and benign input costs, industry operating margins are expected to hold steady at 12-12.5 per cent.

The competitive landscape is also set to intensify, particularly at the premium end of the market. The entry of global premium EV brands, including Tesla, could reshape customer expectations and compel Indian OEMs to accelerate their technology upgrades. However, India’s high import tariffs are expected to limit the immediate impact of foreign EVs.

Also Read: SIAM: UV Sales Hit 2.8 Million in FY25, Driving 65% of India’s PV Market | Republic World

UVs Continue to Drive Growth

Utility Vehicles (UVs) will remain the key growth driver, riding on a spate of new launches, easing interest rates, rising CNG adoption, and a recovering rural economy. UV sales are projected to grow about 10 per cent this year, accounting for nearly 70 per cent of overall PV volumes — underscoring a strong, structural shift towards premiumization.

“Growth will moderate, but UVs will remain the bright spot,” said Anuj Sethi, Senior Director, CRISIL Ratings. “Rural demand, supported by a likely above-normal monsoon and softer financing costs, should also lift entry-level car sales.”

EV Sales to Hit a Speedbreaker?

After doubling last year, EV sales are losing steam. CRISIL expects EV penetration to remain modest at 3-3.5 per cent this fiscal, constrained by high prices, limited charging infrastructure, and persistent range anxiety. EVs are likely to remain largely confined to urban markets as a second-car option for now.

Exports Enter the Slow Lane

On the export front, PV shipment growth is expected to slow to 5-7 per cent next year, weighed down by global headwinds. While a 25 per cent tariff imposed by the US on certain imports will take effect next June, its impact on Indian automakers is expected to be negligible, given the US accounts for only around 1 per cent of India’s PV exports.

To mitigate risks, carmakers are increasingly eyeing alternative markets such as Mexico, the Gulf region, South Africa, and East Asia, although geopolitical tensions remain a concern.

Investments Stay on Track

Backed by healthy cash flows and strong balance sheets, PV makers are set to maintain a high capex outlay of around ₹30,000 crore this year — focusing on capacity expansion, electric mobility, localisation, and digital transformation.

“High investments will continue, despite moderating growth,” said Poonam Upadhyay, Director, CRISIL Ratings. “Strong internal accruals and cash surpluses will keep capex sustainable, with capex-to-Ebitda ratios staying comfortable at about 0.5x.”

Business Outlook

Looking ahead, factors such as the pace of interest rate cuts, EV adoption trends, and developments in the global supply chain — especially concerning semiconductors and battery cells — will be crucial to track, CRISIL added.