India’s auto industry is clearly changing due to trends in urban consumption, fiscal consolidation, and unequal rural recovery. With trends shifting every quarter, the third-largest auto market in the world is also one of the most volatile.
According to a recent study, the first quarter of FY 2025–2026 also points to a variety of tendencies. In the previous quarter, demand for entry-level cars and in rural areas stayed relatively low, according to new Deloitte research called Wheelwatch.
Urban Aspirations Fuel Premium Auto Segment
However, the demand for luxury, hybrid, and electric automobiles is rising due to sustainability choices and urban aspirations. Along with the future of EVs, the research analyses important developments from the passenger car and two-wheeler categories.
State Policies Accelerate EV Adoption in Q1 FY26
Few state governments updated or introduced new EV policies in Q1 of FY2026. For example, Madhya Pradesh introduced a new five-year EV strategy (2025–2030), while Maharashtra extended its EV policy until 2030 with a target of 30% EV penetration.
In the meantime, the central government implemented further incentives like a 100% exemption from road tax and registration and a 15% concessional import tariff on premium EVs. Although unequal, EV adoption is speeding up and is focused in states with supportive policies and infrastructure.
Luxury Bikes and Scooters Gain, Entry-Level Market Falters
In the first quarter of FY2026, domestic two-wheeler sales fell by 6.2%. When looking closely at the two-wheeler market, motorcycles had a 9.2% decline, while commuter bikes saw a 10.4% decline. The challenges on affordability among lower-income households are reflected in this.
Conversely, sales of luxury motorbikes increased by 0.9%, indicating strong premium demand, while sales of sports or performance bikes increased by 10.7%. Scooter sales stayed the same, while mass scooters’ market share increased by 2.2% points, indicating a change in urban transportation. EV penetration rose from 4.9% to 6.2% last year due to a 34% increase in electric two-wheeler registrations.
Kerala Leads EV Penetration Across Two- and Four-Wheelers
With a 14.9% penetration rate—more than twice the national average—Kerala leads the nation in the adoption of electric two-wheelers. Tamil Nadu and Karnataka come next. In the first quarter of FY2026, passenger automobile sales fell 1.4% year over year.
Passenger Cars See Mixed Performance Amid Rural Slowdown
A negative sentiment in rural areas has been blamed for the 7.7% decline in small car sales during this time. Mid-sized cars, on the other hand, increased by 14.6%, indicating that urban purchasers are upgrading for more affordable models.
The EV segment of passenger cars saw a huge year-over-year increase of 75%, increasing its penetration from 2% in Q1 FY2025 to 3.5%. With an EV penetration rate of 7.9%, Kerala once again took the lead, followed by Tamil Nadu, Delhi, Karnataka, and Maharashtra.
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