Indian Auto Sector Roars Back: GST 2.0 and EV Boom Drive Record Growth
- Mani Metto
- 7 days ago
- 5 min read
Updated: 3 days ago
India’s automotive industry is shifting gears powered by GST 2.0 tax reforms, record-breaking festive sales, and a fast-accelerating EV transition. Here’s a deep dive into the forces driving the next decade of mobility and investment opportunities.
GST 2.0 Reforms: A Game-Changer for Affordability
The GST 2.0 reforms, effective September 22, 2025, represent the biggest tax restructuring for India’s auto industry in years. The government collapsed the earlier four-slab GST system into a simplified structure, directly boosting affordability and demand.
Key Tax Changes
Segment | Old GST Rate | New GST Rate | Impact |
Small Cars & 2-Wheelers | 28% | 18% | Huge affordability boost |
Commercial Vehicles | 28% | 18% | Lower logistics costs |
Luxury Cars/SUVs | 50% (incl. cess) | 40% (no cess) | Simplified ITC benefits |
Auto Components | 28% | 18% (uniform) | Removes classification distortions |
Tractors | 12% | 5% | Major relief for farmers |
Immediate Market Impact
Maruti Suzuki received a record 400,000 bookings in 4 weeks after GST 2.0 - its fastest ever rate.
Small car demand surged 70%, as two-wheeler owners upgraded.
Major automakers cut prices by ₹50,000- ₹5 lakh across models.
The Nifty Auto Index jumped 13%, with top auto stocks rallying 15- 20% post GST reforms.
According to The Economic Times:
“We’re seeing a lot of people with helmets visiting our showrooms,” said Partho Banerjee, Senior Executive Officer (Marketing & Sales) at Maruti Suzuki, signalling how affordability is driving mobility upgrades.
Festive Season 2024: Record Sales but Rising Inventories
Passenger Vehicle Boom
October 2024 saw a 32.4% YoY rise in passenger vehicle sales to 4.83 lakh units, driven by Diwali-Navratri overlap and new model launches.
SUVs made up two-thirds of total sales, led by Mahindra’s record month with 100,298 units (+47% YoY).
Two-Wheeler Resurgence
September 2025: +6.7% YoY to 21.6 lakh units.
Festive season 2024: 3.31 million units sold (+14% YoY).
Rural share rose from 53% to 56%, supported by good monsoons and higher MSPs.
Inventory Woes
Despite booming retail, inventories remain excessive:
75–80 days vs. the ideal 21–30 days.
₹51,000–52,000 crore worth of unsold vehicles, the highest ever.FADA warned that discounts may persist through year-end to clear backlogs.
Electric Vehicle Revolution: Accelerating Transformation
EV Sales Growth
India's EV market is experiencing exponential growth. Electric vehicle sales in August 2025 increased 155% YoY to 17,298 units, compared to 6,787 units in August 2024. For the entire January-August 2025 period, EV sales grew 71% to 108,751 units versus 63,583 units in the same period of 2024.
In FY2025, India's total EV sales reached 61,65,964 units, with electric two-wheelers (E2Ws) accounting for over 50% and passenger electric three-wheelers (E3W-P) holding approximately 36% market share. The E2W segment saw ~19% YoY growth in FY2025, while E-Cars recorded ~11% increase.
Market Leaders: Tata Motors dominates the electric passenger vehicle segment with ~53% market share, followed by MG Motor with ~28%. In electric two-wheelers, Ola Electric, TVS Motors, and Bajaj collectively captured over 70% market share.
Tata Motors Passenger Vehicles achieved record EV sales in September 2025 with 9,191 units a 96% YoY surge. Their quarterly EV sales reached nearly 25,000 units in Q2 FY26, up 59% YoY, contributing a record 17% to overall sales.
Government Support and Projections
S&P Global Mobility projects India's battery-powered passenger vehicle production will soar 140.2% YoY in 2025 to approximately 301,400 units, accounting for about 6% of total passenger vehicle production. The market size is estimated at $54.41 billion in 2025, projected to reach $110.7 billion by 2029 at a CAGR of 19.44%.
However, achieving the government's target of 30% EV penetration by 2030 faces challenges. Current EV penetration has grown approximately 200 basis points annually from FY2021 to FY2024. Meeting the 2030 target requires this rate to nearly double to 380 basis points per year.
The Production-Linked Incentive (PLI) scheme for automobiles has attracted committed investments worth ₹67,690 crore. As of March 2024, ₹14,043 crore has been invested, generating over 28,884 jobs. The scheme covers 19 categories of Advanced Automotive Technology (AAT) vehicles and 103 categories of AAT components.
Auto Components: The Industry’s Backbone
The component industry recorded ₹6.73 lakh crore ($80.2B) turnover in FY25, growing 9.6% YoY.
OEM supplies: ₹5.7 lakh crore (+10%)
Aftermarket: ₹99,948 crore (+6%)
Exports: $22.9B (+8%), Trade Surplus: $453M
Yet, OEM margins fell to 5.4% (down 40% from 2021 peaks), and MSME suppliers face cash flow pressures due to delayed payments.
Nifty Auto Index Snapshot (Oct 2025)
Company | Market Cap (₹ Cr) |
Maruti Suzuki | 5,11,250 |
Mahindra & Mahindra | 4,15,074 |
Bajaj Auto | 2,54,128 |
Hyundai Motor India | 1,95,976 |
Eicher Motors | 1,88,895 |
The Nifty Auto Index surged 13% post-GST reforms, signaling strong investor optimism.
Industry Growth Forecasts
Indian Automobile Sector Outlook
Near-term (FY2026):Industry expected to grow 6–7% amid moderate demand. Growth will be supported by GST 2.0 reforms, repo rate cuts, and income tax reliefs, according to Motilal Oswal and SIAM.
Medium-term (2030):
Total vehicle market projected to reach 25 million units by FY2030.
Passenger + commercial vehicle sales to rise from 5.1 million (2023) to 7.5 million units (2030) at a 5.7% CAGR.
Passenger vehicles to grow from 4.1 million to 6 million, led by SUV dominance.
EV Transition:
EVs to form 30% of new vehicle sales by 2030, driven by stronger policy support.
Annual EV sales could hit 17 million units by 2030.
Auto components industry projected to reach $200 billion, supported by alternative powertrain technologies.
Sector Outlook
Sector Outlook Summary
Bullish Factors:
· GST 2.0 reforms provide structural cost advantages, boosting affordability
· Record booking momentum at Maruti (400,000 in 4 weeks) signals strong demand
recovery
· Export growth of 24.4% demonstrates global competitiveness
· EV penetration accelerating with 71% YoY growth in 2025
· Rural demand revival supported by good monsoons and higher MSP
· Festive season traditionally accounts for 30-35% of annual auto sales
· PLI scheme attracting significant investments (₹29,576 crore committed)
· Government infrastructure push driving commercial vehicle demand
Bearish Factors:
· High inventory levels (75-80 days vs. recommended 21-30 days) may pressure margins
· Semiconductor shortage risks in 2025-2026 could constrain production
· Rare earth material supply disruptions threaten EV manufacturing
· Lithium-ion battery import dependence creates vulnerability
· OEM margins compressed to 5.4% (down 40% from 2021 peaks)
· Tata Motors demerger uncertainty affecting investor sentiment
· Commercial vehicle segment showing only modest growth
· EV charging infrastructure inadequate for mass adoption
Conclusion
India’s auto industry stands at a transformational inflection point.The GST 2.0 reforms have turbocharged affordability, festive sales have broken records, and EV momentum is stronger than ever. Yet, challenges persist high inventories, supply chain vulnerabilities, and charging infra gaps could weigh on near-term sentiment.For investors, selectivity is key. Companies balancing ICE, hybrid, and EV portfolios while maintaining financial discipline will emerge as long-term winners. As India accelerates toward its $5 trillion economy goal, the auto sector’s contribution to GDP, exports, and employment will surge making it one of the most exciting spaces to watch in this decade.
Disclaimer: This content is for educational purposes only; please conduct personal research and consult a qualified investment advisor before making any investment decisions.
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