Why India’s Auto Giants Are Rethinking EVs, Global Bets & Volume Growth in FY26

As part of our Q4FY25 rebalance review, we looked closely at different sectors. This one’s about how India’s auto players fared — and while headline numbers showed steady performance, it was the directional pivots (EV recalibration, global M&A, product reprioritisation) that told us more about where the sector’s headed.

The Indian auto sector closed FY25 with cautious optimism. While top-line growth held up across most segments, the quarter reflected mixed demand trends, selective pricing power, and a pivot toward long-term bets — from electrification and premiumisation to exports and capital allocation. Volume momentum wasn’t uniform, average selling price (ASP) gains were uneven, and companies sharpened their focus on scale, margin defence, and global plays.

Demand Environment: Mixed Signals Beneath the Surface

Q4 volumes varied meaningfully across segments and geographies:

Passenger vehicles grew ~2.4% YoY, led by SUVs and MUVs. But Tata Motors lost share in hatchbacks (Tiago, Altroz), dragging down overall PV market share.
Two-wheelers posted 1.1% growth. TVS and Hero cited weak rural demand even as urban markets and exports stayed strong.
Commercial vehicles had a mixed quarter: Ashok Leyland and Eicher VECV posted solid growth, while Tata’s small CV (SCV) segment lost 380 bps share, pulling down its overall CV position by 210 bps.

The underlying picture: premium and export-focused categories held up, but entry-level and rural demand pockets remained soft, especially in 2Ws and LCVs.

Pricing & ASP Trends: Not a Uniform Story

OEMs leaned on mix improvement, incentives, and selective price hikes, but ASP gains were far from broad-based:

Hero MotoCorp reported 5% ASP growth, helped by a better product mix, spares revenue, and a 2% hike.
Hyundai saw a 2.6% ASP lift, aided by reduced discounting and a ₹1,000 crore state incentive.
Bajaj Auto, however, saw just 1% ASP growth YoY, with export ASPs declining 9% due to weaker product mix and lower KTM volumes.

This reflects limited pricing power in competitive or cost-sensitive categories, with many players relying more on mix upgrades than outright pricing levers.

Margins: Stable to Expanding, Despite Cost Pressures

Even with modest volumes and regulatory costs, most OEMs protected or grew margins:

TVS Motor expanded EBITDA margin from ~9% to 12.3% in FY25 via tight cost controls and favourable mix.
Ashok Leyland outperformed on EBITDA, boosted by spares revenue, while improving its net cash by ₹1,150 crore YoY.
Royal Enfield (Eicher) saw standalone margins fall 290 bps YoY, due to model mix and stock clearance pressures.
JLR (Tata Motors) saw margins fall 160 bps YoY amid higher warranty and marketing costs, with some recent tailwinds attributed to accounting levers.

The sector appears to be carefully navigating a margin defence strategy while still investing in EVs and regulatory compliance.

EV Transition: From Push to Prioritisation

The EV growth story moderated, with focus shifting from volume to viability:

Tata Motors’ EV share dropped from 73% to 55% YoY; volumes fell 13%, though margins improved from –7.1% to +1.2%.
Bajaj Auto’s EV business turned marginally profitable, delivering ₹5,500 crore revenue in FY25.
TVS iQube became India’s #2 EV scooter brand, while Hero is prepping two affordable EV launches in July 2025.
Ashok Leyland scaled up its EV truck offerings (14T and 55T) and doubled down on Switch Mobility.

EV adoption is now more margin- and use-case-sensitive, with OEMs balancing long-term EV ambitions with short-term profitability and customer fit.

Strategic Plays: Global Scale and Category Bets

Several OEMs made bold strategic moves during the quarter:

M&M acquired 59% of SML Isuzu, with an open offer to deepen its CV push in the >3.5T segment.
Bajaj Auto committed ₹7,765 crore to take majority control of KTM, signalling a long-term bet on global premium motorcycles.
TVS expanded in ASEAN via full acquisition of ION Mobility and took full control of EBCO (UK e-bikes).
Hero invested ₹510 crore in Euler Motors, marking its entry into the electric 3W segment.

These moves underscore a sector widening its lens, from domestic categories to global relevance and premium positioning.

Policy & Regulatory Overhangs

Cost and compliance concerns continue to shape near-term decisions:

AC cabin mandates (June 2025) could raise CV prices by 0.5–2% for players like Tata and Ashok Leyland.
OBD2B upgrades (due April 2025) have already led to price hikes at Hero and others. These are part of India’s stricter BS6 emission compliance.
Tariff risks loom for JLR, as U.S. and EU duties on UK/Slovak cars are set to rise.
Rare earth supply concerns persist, especially for EV components, flagged by Bajaj and others.

Navigating this landscape will require pricing agility, diversified sourcing, and tighter regulatory preparedness.

Conclusion: At a Strategic Inflection Point

Q4FY25 showed an industry in transition — not just tactically, but structurally. The focus is clearly shifting toward:

Smarter EV bets
Margin protection over market share
Global M&A and alliances
Better capital allocation across cycles

With rural demand still uncertain and regulatory pressures rising, the winners in FY26 may not be the fastest-growing, but those who balance innovation, cost discipline, and long-term category leadership in a changing auto landscape.

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