GST Cuts Fuel ICE Surge, Leave EVs Trailing

GST Cuts Fuel ICE Surge, Leave EVs Trailing

Issue: To analyze the market impact of the GST rate cuts on the automotive industry, noting the unexpected consequence that the reduction in tax for Internal Combustion Engine (ICE) vehicles significantly narrowed the price gap with Electric Vehicles (EVs), leading to a surge in ICE sales that caused the market share of EVs to decline.

Facts:

• The GST Council cut taxes for ICE two-wheelers and four-wheelers from 28% to 18% for many categories in September.
• Electric Vehicles (EVs) were already taxed at a low 5% and received no further tax cut.
• The data focuses on the October 2025 festive season sales.

Decision:

The GST rate cuts and the festive rush fueled a sharp surge in conventional Internal Combustion Engine (ICE) vehicle sales, which, in turn, caused the overall market share of Electric Vehicles (EVs) to drop to its lowest level in months.

Key TakeDowns:

• Price Gap Narrowed: The tax decision significantly narrowed the price gap between cheaper ICE vehicles and EVs, providing a strong incentive for buyers to choose traditional petrol and diesel models during the festive season.
• ICE Dominance: The market share of ICE vehicles increased sharply in October: from 91.71% to 95.31% for two-wheelers and from 65.61% to 68.1% for four-wheelers.
• EV Growth Slows: Although EV sales continued to grow in absolute numbers, their Year-on-Year growth rate slowed to its weakest level in months (electric two-wheelers grew only 6% YoY, electric four-wheelers grew 58% YoY on a low base), showing their share was overwhelmed by the ICE surge.
• Other Headwinds: EV makers were already contending with the rare earth magnet supply crisis.
• Deepening Base Argument: Some analysts argue that the GST cuts broadened the base by attracting first-time/entry-level buyers (who primarily buy small ICE vehicles) into the market, making the EV share shrink as a proportion of the total pie.
• Long-Term Optimism: Despite the short-term market share dip, EV makers remain confident, arguing that the fundamental strengths—better total cost of ownership (TCO), performance, and lower maintenance—will ensure the EV category keeps growing in the long run. ***