As we close the chapter on 2024, India’s automotive sector reflects a dynamic narrative of challenges, resilience, and transformation. From post-COVID growth to a recent slowdown, shifting consumer preferences, and reduced EV subsidies, the industry reflects a mix of resilience and uncertainty.

With insights backed by data, charts, and expert analysis, we explore the journey of the auto sector from pre-pandemic highs to the uncertainties of today, and what 2025 and beyond might hold for the Indian economy’s critical pillar - the automotive industry.

Background

India's auto sector is a cornerstone of the country’s economic growth, significantly contributing to GDP, employment generation, and attracting Foreign Direct Investments (FDIs).

Urbanization, rising incomes, and infrastructure development are playing a pivotal role in the demand and growth of the auto sector. Further the movement of the auto market towards cars, especially SUVs suggest that cars are an important positional good i.e. something that people derive social standing from. Additionally, the transition to electric vehicles (EVs) is central to India's sustainability goals, supported by government initiatives like FAME and PLI schemes. Hence, monitoring the sector’s growth is key to understanding India's economic trajectory, global competitiveness and clean-tech innovation.

In this article, we delve into how the automotive sector has evolved over the years, focusing on its post-COVID recovery and outlook for 2025 and beyond.

Looking back | The growth journey - 2017 to 2024

During the pre-COVID era (2017–2020), India’s automotive industry experienced steady growth, driven by consistent demand and incremental sales across segments. However, the COVID-19 outbreak (2020–21) brought unprecedented challenges. While the pandemic was a global phenomenon, India’s economy faced a sharper impact due to stricter lockdown measures and mobility restrictions. This led to production halts, supply chain disruptions, and a significant decline in consumer demand.

The industry also witnessed a notable surge in automobile prices, driven by two key factors:

1. A global shortage of critical automobile components, particularly semiconductors.

2. The simultaneous implementation of BS-VI emission norms, which increased production costs.

These factors collectively led to a 50% increase in Average Selling Price (ASP) of passenger vehicles from ₹7.6 lakh in FY19 to ₹11.5 lakh in FY24, prompting a shift in consumer preferences.

Figure 1: Average Selling Price (ASP) of passenger vehicles

However, post COVID session (2021-2024) has witnessed pent-up demand, a strong recovery and rebound in sales despite the significant hike in automobile prices. 

Figure 2: Vehicular category-wise sales | 2017-2024

While the industry observed a growing demand for premium and aspirational vehicles, sales of entry-level models struggled. During the first half of the FY22 compared to the same period in 2018–19, sales of passenger cars, including entry-level hatchbacks, declined by 24.7%, while utility vehicle sales surged by an impressive 111.6%. As reported in The Indian Express, cars priced above ₹10 lakh experienced a fivefold faster growth compared to those priced below ₹10 lakh.

This trend underscores the ongoing distress in the lower end of the auto segment, which has a cascading effect on the entry-level car market. Many consumers in this segment typically upgrade from two-wheelers, but the economic strain has limited their ability to do so. India, with a car ownership rate of just 7.5%, lags far behind other nations, reflecting its nascent automotive penetration.

Figure 3: Car ownership across various countries

Two-wheelers (2Ws) have been the back-bone of India’s auto-sector, remaining the most preferred mode of transportation for millions. In 2024, 2Ws constituted for ~78% of all vehicular sales. 

Figure 4: Vehicular sales by category | 2024

Furthermore, 2Ws sales have shown significant progress with a double digit growth rate of 11% Year-on-Year (YoY) in 2024.

Figure 5: Two-wheeler sales | 2017-2024

However, a closer look at model-wise sales of two-wheelers reveals a notable trend similar to four-wheelers: the growing premiumization of vehicles. Between 2023 and 2024, premium two-wheelers outperformed mass-market commuter models, recording significantly higher growth rates as outlined in the figure below.

Figure 6: Two-wheeler vehicle segment growth rate FY2023-24

Moreover, while two-wheeler sales are still lower than the peak in 2019 in the pre-pandemic era, the four-wheeler sales have  significantly increased by 30% in the same period. 

 Figure 7: Four-wheeler sales | 2017-2024

2024 | The beginning of a slowdown?

The post-pandemic recovery of the Indian automotive industry has been a story of resilience and growth, but 2024 marks the beginning of an industry-wide slowdown after two consecutive years of strong demand. While overall vehicle sales remained subdued for most of the year, October stood out as an exception due to the alignment of three major festivals—Navratri, Dhanteras, and Diwali—in the same month.

Figure 8: Vehicular category-wise monthly sales | 2024

Uncharacteristically, December—the month typically associated with end-of-year discounts and high sales—saw a decline in demand, disrupting historical trends. According to an Economic Times report, Indian car dealers recorded a surprising 2% drop in sales in December 2024, reflecting broader economic pressures.

To compound the challenges, the EV landscape has been worse if not similar. The Electric Mobility Promotion Scheme (EMPS) introduced last year has drastically reduced the demand subsidies for EVs across all vehicular categories significantly impacting its affordability.

Table 1: Demand subsidies across vehicular categories

For the first time ever, the EV sales have declined on YoY basis in 2024. 

Figure 9: Electric Vehicle category-wise sales | 2017-2024

While the broader automotive sector slowdown has undoubtedly played a role, the reduction in subsidies appears to be the primary driver of this decline. The impact is evident as EV penetration—the proportion of EV sales among total vehicle sales—has also decreased for the first time.

Figure 10: Electric Vehicle category-wise penetration | 2017-2024

2025 | The road ahead

While the auto industry may face further sales declines, the EV segment offers glimmers of hope, fueled by the launch of several promising models. With falling battery prices, EVs are becoming more affordable, and manufacturers are increasingly willing to pass on these cost advantages to consumers. Over the past two months, a handful of ground-up EV models have been announced, signaling a renewed focus on creating products that better align with market needs.

In the four-wheeler segment, these new EVs are strategically positioned in the premium category, where demand has been steadily rising. This strategy mirrors the 'Tesla way'—prioritizing the development of high-quality, niche products that challenge traditional ICE vehicles, before expanding into mass-market offerings. By focusing on premium EVs, manufacturers are tapping into a segment with strong purchasing power while laying the groundwork for broader adoption in the future. On the other hand, we see traditional manufacturers like Honda jumping in the EV bandwagon with new product launches while the ‘born electric’ companies are focusing on building and improving their existing line-up with better features. If these trends persist, the EV landscape could regain momentum, setting the stage for the road ahead.