A nuanced understanding of the austerity calls from Prime Minister (PM) Modi reveals that they were specifically aimed at reducing the forex outflows. In the context of fuels and energy, one of the multiple calls was to adopt electric vehicles (EVs). Given that Indian automakers import more than half of EV parts, the PM’s call needs a critical analysis.
An EV requires an upfront one-time import of multiple critical auto parts for manufacturing, such as batteries, traction motors, integrated chips, power electronics, and charging connectors. Whereas internal combustion engine vehicles (ICEVs), for which India has achieved 90% localisation for manufacturing, cause a continuous forex drain due to fuel imports.
Navigating the EV transition: Consumer behaviour
Tailpipe-emission benefits, non-recurring import dependence, and the opportunity to build a competing domestic EV supply chain have led to a strong government-led push for EVs, with direct incentives for consumers through interest subsidies and tax exemptions. However, the success of any such push ultimately hinges on consumer adoption. In the financial year (FY) 2023–24, ICEVs (petrol, diesel, and compressed natural gas [CNG]) accounted for 95.5% of passenger car sales, followed by EVs at 2.35%. This difference widened in FY 2025–26, with the share of ICEVs and EVs at 92.65% and 4.7%, respectively, reflecting the successful impact of EV policies on commercial sales.
Hybrids: A transition partner
The recent decline in ICEV sales was also due to the rise in adoption of hybrid electric vehicles (HEVs), mostly consumer-led with minimal government push. HEVs—existing in forms such as strong, series (or range extenders), and plug-in hybrids—serve as a transition bridge between ICEVs and EVs by utilising both combustion engines and electric motors. In FY 2023–24, FY 2024–25, and FY 2025–26, strong hybrids accounted for 2.15%, 2.4%, and 2.65%, respectively, of all passenger car sales, marking a steady increase in adoption rates.
Despite higher running costs for HEVs (compared to EVs) and a limited number of commercial models, these vehicles are gaining popularity primarily due to their ease of ownership (zero range anxiety), followed by higher mileage and lower emissions than ICEVs. Sensing the organic attraction of the Indian consumers towards HEVs, almost all the original equipment manufacturers (OEMs) are looking to introduce HEVs in their product line-ups by 2026-end.
Incentives, dependencies, and OEM crossroads
Indian OEMs are mandated to adhere to specific average fuel-efficiency levels across their entire annual sales fleet under the Corporate Average Fuel Efficiency (CAFE) norms. In practice, this pushes OEMs to balance their combustion vehicle portfolios with cleaner powertrains (EVs and HEVs) to remain compliant.
A key enabler of this compliance framework is the super-credit multiplier, which assigns greater weight to low- and zero-emission technologies. While EVs have a super-credit multiplier effect of 3, the dependency of Indian OEMs on a few countries for the EV manufacturing value chain, especially in the high-technology domain, remains a pain point. For instance, the rare earth and permanent magnet export curbs from China in mid-2025 hit the Indian EV industry the hardest.
Within the HEV segment, super-credit allocation varies by technology type (series hybrids at 3, plug-in hybrids at 2.5, and strong hybrids at 1.6—reduced from 2 as per the latest draft of upcoming CAFE-III norms). Unlike EVs and more complex HEVs (series and plug-in hybrids), the supply chain for strong HEVs is largely localised (except for some sophisticated advanced battery cells and voltage power electronics).
Given that the supply chains for crude oil (for ICEVs plus strong hybrids) and EV parts are highly susceptible to geopolitical shocks, India’s mobility sector faces a strategic dichotomy: adhering to a state-incentivised EV transition or adopting a multi-powertrain strategy to meet diverse consumer demand.
There is no clear answer to this question because moving away from EVs may derail India’s path towards EV-led infrastructure, while a stringent stance against HEVs may slow down the incremental stepping away from ICEVs.
Way forward
The passenger car sales numbers indicate that an Indian consumer needs a backup while transitioning, whether it is the case for bi-fuel CNG vehicles (petrol is the backup) or biofuel-based flexible-fuel vehicles (runs on up to 85% or even 100% ethanol); and the same applies to HEVs (to subdue range anxiety from EVs). A parity-based incentivisation for HEVs on the taxation front (Goods and Services Tax and road tax), along the lines of EVs, can help India navigate geopolitical risks by diversifying its vehicle fleet while maintaining its manufacturing edge. India must view hybrids not as rivals to EVs, but as essential allies that can accelerate emission reductions and hedge against forex outflows by migrating traditional ICEV buyers to transitional platforms.
By Kumar Saurabh (Consultant-Technology Watch Group – CSTEP)
