Electric vehicle adoption picking up, but still modest in key segments: FADA

CS Vigneshwar, President of the Federation of Automobile Dealers Associations (FADA) predicts a slow but steady increase in electric vehicle (EVs) adoption this year, potentially reaching around 10% from the current 7.8%, driven by more vehicle options and increased participation from manufacturers.

While acknowledging the need for energy independence and a move away from traditional fuels, Vigneshwar pointed out that EV penetration is currently modest.

“In the two-wheelers, it has gone from about 5.4% to 6.1% and in the passenger vehicle segment, it has gone from 2.3 to 2.6%. So these are not large numbers,” he stated.
He emphasised that EVs are “one of those tools” alongside hybrids and compressed natural gas (CNG) vehicles for India to reduce its reliance on petrol and diesel.

A significant shift, however, is being witnessed in the three-wheeler segment, where “57% of vehicles sold right now are EVs,” with expectations of reaching near full electrification in the coming years. Two-wheelers and passenger vehicles are expected to follow at a slower pace.

Also Read | Why Tesla’s entry is unlikely to disrupt India’s retail EV market

Turning to the issue of US trade tariffs, Vigneshwar expressed concern about their potential negative impact. “It is very important to know that tariffs will not help anyone.” While direct vehicle exports from India to the US are limited, he noted that some component suppliers could be affected.

More broadly, he cautioned that a struggling global economy would directly impact vehicle sales in India, as consumers across various professions tend to postpone purchases when their sectors are not performing well. He welcomed India’s decision not to retaliate with reciprocal tariffs, hoping for a diplomatic resolution where “people would sit down, talk to each other, and come to an agreement.”

Regarding inventory levels, Vigneshwar revealed that passenger vehicle inventories are “hovering at around 50-55 days,” which is higher than the desired level of around 21 days and could lead to losses for dealers due to holding costs. Regarding original equipment manufacturers’ (OEMs) future market trends, he believes one needs to “wait and watch” how ongoing international trade discussions unfold.

Also Read | Odds of market gains in 3-5 years have just shot up, says a $2 bn fund CIO

In terms of the crucial role of the Indian government in supporting the auto industry, he suggested a potential review of the high goods and services tax (GST) rates on vehicles (ranging from 28% to nearly 50%) and urged the government to work with banks to ease lending norms, which have seen some tightening recently.

He also highlighted the domestic growth potential, given India’s low vehicle penetration rate compared to developed nations. “We are at probably about 30 or 35 vehicles per 1,000 population, while Norway is around 930-940. We need to also realise that there is a huge opportunity for us domestically to sell cars, sell bikes, sell trucks.”