Indian electric two-wheelers growth to slow to 12–13% in FY2026 on magnet shortage

Volume growth of electric two-wheelers (E2Ws) in India is expected to slow 12–13% in FY2026 from approximately 22% last year due to short-term supply-side disruptions and shifting price dynamics weighing on momentum, a report by Crisil Rating said. A shortage of rare-earth magnets, a vital component in electric motors, crimped output during the middle of the year, while the goods and services tax (GST) rationalisation on internal combustion engine (ICE) models offered a short-term boost to conventional two-wheelers.

According to Crisil, the magnet shorted let to disruptions in manufacturing and dealer inventories. Although supply has started to improve in recent months, the earlier production losses are likely to cap full-year E2W growth. Volume recovered in the latter part of the year, mainly due to manufacturers offering discounts and launching lower-priced variants to reduce the price differential between electric and ICE models.

Looking ahead, Crisil expects a rebound in volume growth to 16–18% next fiscal, assuming stable raw material supplies and continued improvement in component sourcing. The structural cost advantage of electric vehicles remains in place. Even as subsidies get trimmed, the running cost of E2Ws is projected at about INR0.3 ($0.0033) per kilometre versus INR2–2.5 for ICE vehicles. This large differential ensures that the total cost of ownership remains in favour of electric models, especially for use in urban areas.

Crisil’s analysis of 10 major original equipment manufacturers (OEMs), making up about 85% of E2W volumes, points to a diverging competitive position. Four legacy manufacturers with both ICE and electric portfolios look to be better placed to handle the transition, while six new-age, EV-only players face more acute profitability pressures.

The penetration of E2W is projected to jump to around 7% of total two-wheeler volumes by next fiscal year versus 5.5% at present. Scooters remain the most important driver of adoption, making up for 90–95% of total E2W sales, with electric penetration in the scooter segment at roughly 15%. The demand is expected to come mainly from the urban markets.

As central and state incentives are phased out and battery cost declines slow following sharp corrections in the past two fiscals, competition is shifting from price-led expansion to service-led differentiation, Crisil said. Battery packs constitute 35–40% of the cost of the vehicle, and although prices have softened to a large extent in recent years, the speed of the drop has slowed. Under these circumstances, reliability of the product, dealer networks and after-sales service become key factors.

Legacy OEMs have solidified their position, increasing their market share to around 62% by January 2026 from approximately 47% a year before. Their advantage is derived from established supplier ecosystems, deeper dealer reach and the ability to cross-subsidise electric portfolios with profitable ICE businesses. For these players, E2Ws constitute only 5–6% of total volumes, limiting earnings volatility and allowing a calibrated expansion strategy.

In contrast, new-age EV manufacturers remain exposed to weaker unit economics. Industry estimates suggest Ebitda losses of INR250bn–350bn per vehicle for many EV-only players. While investor capital fund these losses as of today, continued access to funding, partnerships and operational scale will be important for long-term viability.

Crisil said that the larger industry outlook for the E2Ws depends on factors such as stable raw material supplies, cost reduction through indigenisation, stable policy support and the speed at which electric mobility expands beyond early adopters. Urban mobility needs, environmental regulations and consumer awareness will also influence adoption trajectories.

India aims to be self-reliant

The Indian government has taken into account the critical nature of rare-earth magnets for electric mobility and other important sectors and therefore has accelerated efforts to build domestic capacity. In November last year, it greenlit a INR72.8bn scheme to establish 6,000 tonnes per annum of integrated Rare Earth Permanent Magnet (REPM) manufacturing capacity. The plan takes into account the full value chain, from processing rare-earth oxides to manufacturing finished sintered magnets, with incentives depending on production and capital investment.

Through the Union Budget 2026–27 the government announced the setting up of Dedicated Rare Earth Corridors in the states of Odisha, Kerala, Andhra Pradesh and Tamil Nadu. These will help in integrating mining, processing, research and manufacturing activities in mineral-rich areas of the country.

India has substantial reserves and boasts of approximately 13.15mn tonnes of monazite, consisting of about 7.23mn tonnes of rare-earth oxides. More resources have been identified in the states of Gujarat and Rajasthan. Despite a massive resource base, local output of permanent magnets remains small.

Between 2022 and 2025, imports—primarily from China—met approximately 60–80% of India’s rare-earth magnet demand by value and up to 85–90% by quantity. With demand likely to double by end of this decade, driven by electric vehicles, wind turbines, electronics and defence applications, cutting dependency on imports has become a priority for the government.

The REPM manufacturing scheme includes sales-linked incentives over five years and capital subsidies to encourage the setting up of advanced facilities. The two-year gestation period for plant setup will be followed by phased incentive disbursements tied to production targets.

According to the government, these initiatives are in line with the larger national goals of Atmanirbhar Bharat or self-sufficient India, Net Zero 2070 and Viksit Bharat @2047 or developed India by 2047.