MUMBAI: The volume growth of electric two-wheelers (E2Ws) is expected to improve next fiscal to 16-18%, buoyed by the easing supply constraints of rare-earth magnets, up from 12-13% this fiscal, but still lagging behind the 22% volume spike clocked in FY25.
“We expect the E2W growth to rebound to 16-18% next fiscal from 12-13% this fiscal, supported by a structural ownership-cost advantage (after the GST rate cut shocker forced the volumes to go back to petrol variants) and the improving supplies of the key rare-earth magnets,” Crisil said in a report Thursday.
The report also noted that competitive pressure is creating divergent risk profiles, with legacy players better insulated, while new-age players continue to face weak unit-vehicle economics.
In the outgoing fiscal, the volume is set to moderate to 12-13% from 22% in the last fiscal due to temporary disruptions in supply of rare-earth magnets and transient tailwinds of the GST rate cuts on petrol models. The report is based on an analysis of 10 original equipment manufacturers, comprising four legacy players with ICE and E2W portfolios and six new-age EV-only players, who collectively account for 85% of the E2W volume.
The rising growth comes against steady reduction in subsidies through various central schemes. The first was the ending of the faster adoption and manufacturing of electric vehicles (Fame) subsidy for E2Ws in March 2024, which was followed by the electric mobility promotion scheme (EMPS) from April to September 2024, under which incentives were reduced to Rs 5,000 per kWh and capped at Rs 10,000 per vehicle. From October 2024, the PM E-Drive scheme took effect, offering incentives of Rs 5,000 per kWh in fiscal 2025 and Rs 2,500 per kWh in fiscal 2026, subject to a cap of 15% of the vehicle’s ex-factory price, whichever is lower.
According to Anuj Sethi, a senior director with Crisil Ratings, the supply disruption caused by shortage of rare-earth magnets had weighed on E2W volumes around mid-year. As availability began to ease, coinciding with the GST-led price revision in petrol models, OEMs relied on discounting and introduced lower-priced models to narrow the ICE-EV price gap.
While this has supported a volume recovery in recent months, the impact of the earlier supply disruption is expected to limit full-year growth to 12-13%. With supply conditions improving, reflecting a gradual resumption of inflow of magnets from China alongside initial steps by OEMs to diversify sourcing, growth is expected to re-accelerate to 16-18% next fiscal, assuming stable availability of rare-earth magnets, he added.
Meanwhile, E2W adoption continues to be supported by strong vehicle economics. While GST rate cuts have reduced the purchase cost of petrol vehicles, running costs favour E2Ws, at Rs 0.3/km vs Rs 2-2.5/km for petrol models, continuing their advantage in total cost of ownership even as subsidies taper.
This allows penetration to rise despite some moderation in near-term growth. E2Ws are expected to account for 7% of the total two-wheeler volume by next fiscal, up from 5.5% currently. For the record, scooters continue to drive adoption, with EV penetration at 15%, and account for 90-95% of the E2W volume.
With incentives being phased out and the pace of decline in battery cost (which accounts for 35-40% of total costs) slowing after a sharp correction over the past two fiscals, price-led competition has narrowed. Increasingly, reliability and service are becoming more important differentiators, and this is where legacy OEMs are scoring high at present, Sethi said.
According to Poonam Upadhyay, a director with the agency, the market share of legacy players has increased to 62% by January 2026 from 47% a year earlier, clearly outperforming new-age players.
This shift is reshaping risk profiles also. For legacy OEMs, electrification remains a portfolio extension, with E2Ws accounting for 5-6% of volumes, limiting earnings volatility. In contrast, new-age players are incurring operating losses of Rs 25,000-35,000 per vehicle.
These losses are currently being absorbed with the support of existing investor capital, while continued access to funding, including through strategic partnerships, will remain important for business continuity and expansion.
Looking ahead, sustained growth in E2Ws will depend on urban mobility demand, broader adoption beyond early adopters, successful execution on cost reduction and localisation, evolution of subsidy policies, stability in raw material availability, and timely fund infusions for new-age players, Upadhyay said.