Electric Two-Wheeler Sales Growth Set to Rebound to 18% as Rare-Earth Supply Constraints Ease

India's electric two-wheeler sector is set for a growth revival in the next financial year, with volume expansion projected at 16-18 per cent as rare-earth material supply constraints diminish, Crisil Ratings said on Wednesday. This forecast comes after growth in the current fiscal year is expected to moderate to 12-13 per cent, down from 22 per cent in the previous fiscal year, primarily due to supply chain disruptions and changes in goods and services tax (GST) regulations affecting internal combustion engine (ICE) motorcycles and scooters.

Also read: Indian Motorcycle Becomes Independent as Carolwood Acquires Brand from Polaris

Supply Chain Disruptions and Current Year Performance

The electric two-wheeler (E2W) segment has experienced temporary setbacks this fiscal year stemming from interruptions in rare-earth magnet supplies and GST rationalisation measures applied to ICE models, Crisil Ratings stated in its assessment.

"The supply disruption caused by the 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 ICE models, OEMs relied on discounting and introduced lower-priced electric models to narrow the ICE-EV price gap," Anuj Sethi, Senior Director at Crisil Ratings, said in a statement.

Whilst these strategies have supported a volume recovery in recent months, the earlier supply disruption is expected to constrain full-year growth to 12-13 per cent, Sethi explained.

Recovery Expected as Magnet Supply Normalises

Looking ahead to the next fiscal year, improved supply conditions are anticipated to drive renewed growth momentum.

"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 per cent next fiscal, assuming stable availability of rare-earth magnets," Sethi said.

The projected 16-18 per cent growth is underpinned by electric two-wheelers' structural total cost of ownership advantage over conventional petrol-powered alternatives, Crisil Ratings noted.

However, intensifying competitive pressures are creating divergent risk profiles across the industry. Legacy manufacturers with established ICE and E2W portfolios demonstrate better resilience, whilst new-age, electric-only players continue to grapple with weak unit-vehicle economics.

An analysis covering 10 original equipment manufacturers (OEMs) -- comprising four legacy players with both ICE and E2W portfolios and six new-age EV-only manufacturers -- substantiates this trend. These companies collectively represent approximately 85 per cent of India's E2W volume.

Running Cost Economics Remain Compelling

Electric two-wheeler adoption continues to be bolstered by superior vehicle economics. Although GST rate reductions have decreased the purchase price of ICE vehicles, operational costs strongly favour E2Ws, running at approximately 3 paise per kilometre compared to Rs 2-2.5 per kilometre for petrol-powered alternatives. This maintains their total cost of ownership advantage even as government subsidies gradually diminish.

Price Competition Moderates as Battery Costs Stabilise

With government incentives being phased out and the rate of battery cost decline -- which comprises 35-40 per cent of total manufacturing costs -- slowing following sharp corrections over the past two fiscal years, price-led competition has become less pronounced, according to Crisil Ratings.

Reliability and service quality are increasingly emerging as critical differentiating factors, areas where established legacy OEMs currently hold significant advantages.

Legacy Manufacturers Capture Growing Market Share

Poonam Upadhyay, Director at Crisil Ratings, highlighted the shifting competitive landscape: "The market share of legacy players has increased to 62 per cent by January 2026 from 47 per cent a year earlier, clearly outperforming new-age players."

This market share gain reflects legacy manufacturers' superior dealer network coverage and more robust supplier ecosystems. Additionally, their expanded range of entry-level and mid-priced electric models enables faster product rollout, wider geographic availability, and more consistent execution capabilities, Upadhyay noted.