The Indian automotive industry concluded 2025 on an exceptionally strong note, marking a period of unprecedented growth and significant shifts in market dynamics. Retail registrations for two-wheelers soared to a record 20.2 million units, reflecting a robust 7% year-on-year expansion and surpassing the previous peak of 19.6 million units set in 2018. Simultaneously, the passenger vehicle (PV) segment, encompassing cars, sports utility vehicles (SUVs), and vans, also achieved an all-time high, with registrations reaching 4.38 million units, an impressive 9% increase over the preceding year. This dual record-breaking performance underscores the resilience and burgeoning potential of one of the world’s most critical automotive markets, signaling a potent rebound from earlier economic uncertainties.
Investor confidence in the sector mirrored this robust sales momentum. The Nifty Auto index, a barometer for the automotive industry’s stock performance, registered a notable 22% increase during the year, significantly outperforming the broader benchmark Nifty 50 index, which saw a 10% rise. This bullish sentiment reflects optimism regarding sustained demand, improved manufacturing efficiencies, and the long-term growth trajectory of the Indian economy. Analysts are now closely scrutinizing the sustainability of this demand, particularly given the confluence of factors that propelled this stellar performance, including strategic governmental interventions and evolving consumer preferences.
A pivotal catalyst for this accelerated growth was the rationalization of the Goods and Services Tax (GST) rates in September. The Union government’s decision to reduce GST on small passenger vehicles and two-wheelers from 28% to 18%, and on larger vehicles from a range of 45-50% to a uniform 40%, directly translated into a series of price reductions by automakers. This fiscal relief made vehicles more affordable for consumers, especially in the crucial entry-level segments for both two-wheelers and passenger vehicles, where demand subsequently witnessed a marked pickup. Industry observers from firms like Motilal Oswal Financial Services noted that this demand surge remained resilient even beyond the traditional festive season, indicating a more fundamental shift in purchasing behavior rather than merely a temporary boost. The lower tax burden not only stimulated new purchases but also encouraged upgrades, particularly in semi-urban and rural markets, which are highly sensitive to price fluctuations and financing costs.
The competitive landscape within the passenger vehicle segment experienced a significant shake-up in 2025. For the first time in over a decade, Mahindra & Mahindra (M&M) ascended to the second position in terms of passenger vehicle registrations, dislodging Hyundai India, a consistent runner-up in previous years. M&M recorded a remarkable 20% growth, registering over 583,000 units, propelled by its strong portfolio of SUVs that resonated well with contemporary consumer trends favoring utility and robust design. Maruti Suzuki India, the perennial market leader, maintained its dominance with an 8% growth, selling 1.7 million units, demonstrating sustained strength across its diverse range, particularly in the entry-to-mid-level segments. Tata Motors also exhibited solid performance, with a 5% increase to 552,000 units, largely driven by its renewed focus on design, safety, and an expanding electric vehicle portfolio. In contrast, Hyundai India saw a marginal decline of 1%, with registrations tallying 557,000 units, highlighting the intensifying competition and the need for continuous innovation to maintain market share. This shift underscores the dynamic nature of the Indian market, where brand perception, product innovation, and strategic pricing play crucial roles in determining leadership positions.
The two-wheeler market, a backbone of personal mobility in India, also presented a mixed but generally positive growth picture. TVS Motor Company emerged as a standout performer, registering an impressive 17% surge in registrations to 3.8 million units, indicative of its strong product pipeline and market penetration. Hero Motocorp, the largest two-wheeler manufacturer by volume, reported a respectable 6% growth, reaching 5.8 million units, underscoring its vast network and appeal in mass-market segments. Honda Motorcycle and Scooter India (HMSI) also achieved a 6% growth, crossing 5 million units, maintaining its strong presence in the scooter segment. However, Bajaj Auto experienced a slight contraction of 1%, with 2.15 million units registered, signaling potential challenges in specific sub-segments or intensifying competition from rivals. The varied performance within the two-wheeler sector reflects evolving consumer preferences, the impact of rising fuel costs, and the growing appeal of alternative mobility solutions, including electric variants.
Perhaps one of the most significant "firsts" of the year was the substantial breakthrough in the electric vehicle (EV) market. Total EV sales across all categories—including two-wheelers, three-wheelers, passenger vehicles, and commercial vehicles—surpassed the two-million mark for the first time, reaching 2.2 million units with a 15% year-on-year growth. Intriguingly, legacy two-wheeler manufacturers demonstrated a remarkable pivot and leadership in the electric two-wheeler segment. TVS Motor’s EV sales jumped by 35% to nearly 298,200 units, while Bajaj Auto saw an even more significant 39% growth, with nearly 270,000 EV units sold. This success highlights the strategic advantage of established players who can leverage their existing manufacturing capabilities, extensive dealer networks, and brand trust to accelerate EV adoption. This trend suggests that while new-age EV startups have gained initial traction, the incumbents are rapidly catching up and establishing dominance, particularly in the volume-driven two-wheeler segment. The broader growth in EV sales points to a maturing ecosystem, supported by government incentives, increasing consumer awareness about environmental benefits, and improving charging infrastructure, albeit still nascent in many regions.
These remarkable milestones were achieved against a backdrop of unique geopolitical complexities, including restrictions on rare earth magnet exports by China—a critical component in both internal combustion engine (ICE) vehicles and electric vehicles. Such global supply chain pressures underscore the vulnerabilities inherent in the automotive industry and the ongoing need for diversification and localized sourcing strategies. Despite these headwinds, the sector’s performance demonstrates a robust capacity to adapt and overcome external challenges, perhaps benefiting from strategic inventory management and proactive procurement.
Looking ahead, the industry is bracing for potential shifts in pricing strategies. With the robust sales momentum, analysts anticipate a reduction in the quantum of discounts offered in the coming months, as automakers prioritize relieving pressure on profit margins. Reports from Kotak Institutional Equities suggest that original equipment manufacturers (OEMs) in the two-wheeler and passenger vehicle segments could face an overall margin pressure of 67-74 basis points from Q2FY26 levels, primarily due to the higher content of base metals and platinum group metals (PGMs) in their products compared to commercial vehicles and tractors. The volatile global commodity prices for these materials, essential for components like catalytic converters and batteries, directly impact production costs. Consequently, a more disciplined approach to pricing and incentives is expected, which could slightly moderate demand but is crucial for maintaining financial health.
Market intelligence from PhillipCapital further reinforces this outlook, noting that while demand remains healthy across segments, with SUVs and premium models leading the charge, inventory levels are largely under control for most OEMs. Maruti Suzuki continues to demonstrate strength in the entry- to mid-level segments, complementing Mahindra’s leadership in SUVs. The consensus among experts is that rural India, buoyed by favorable agricultural policies and a good monsoon, has been a significant growth engine, a trend highlighted by Maruti Suzuki’s senior executive officer for sales and marketing, Partho Banerjee. He emphasized that a combination of income tax relief, GST reductions, lower repo rates, and robust Minimum Support Prices (MSP) for agricultural produce created powerful tailwinds for sales throughout 2025. The strong performance of the rural economy, often a bellwether for entry-level vehicle sales, suggests a broad-based economic recovery and increased disposable incomes. The industry remains cautiously optimistic, anticipating continued momentum, provided no major geopolitical disruptions or unforeseen economic shocks materialize. This robust performance of the automotive sector not only reflects its own strength but also serves as a critical indicator of India’s broader economic dynamism and consumer confidence.
