The Passenger Vehicle (PV) industry closed FY2025-26 at a record high of around 4.7 million units, marking an 8.4% year-on-year increase and surpassing the previous peak of 4.34 million units. The milestone reflects a sharp second-half recovery, supported by policy tailwinds, sustained Sport Utility Vehicle (SUV) demand and growing traction for Battery Electric Vehicles (BEVs).

Momentum strengthened in March, with domestic PV wholesales rising 16.2% year-on-year to 451,394 units, led by strong performances from Tata Motors and Mahindra & Mahindra (M&M).

Industry executives described FY26 as a year of two distinct phases. A muted first half—impacted by weak entry-level demand and macroeconomic pressures—gave way to a strong rebound after Goods and Services Tax (GST) rate rationalisation in September 2025 improved affordability and lifted festive demand.

SUVs, EVs reshape demand

Maruti Suzuki India Limited (MSIL) retained its leadership position and closed the year with its highest-ever overall sales of over 2.4 million units. Domestic volumes stood at roughly 18.4 lakh units, reflecting a modest 3–4% year-on-year increase, even as exports provided a stronger growth push and accounted for more than a fifth of total dispatches.

Partho Banerjee, Senior Executive Officer (Marketing & Sales), said the company recorded its strongest-ever March performance across wholesale and retail channels. He also highlighted the continued relevance of compact cars, with the Dzire emerging as the industry’s top-selling model at over 2.3 lakh units, even as the company builds early momentum in electric mobility with the e Vitara.

Structural shifts in consumer preferences continued to favour SUVs, which accounted for a rising share of total volumes and underpinned growth across automakers’ portfolios. This trend helped Mahindra & Mahindra (M&M) overtake Hyundai Motor India to become the second-largest PV manufacturer in FY26, while Tata Motors closed in on the gap, intensifying competition at the top.

Electric Vehicles (EVs), though still nascent, posted strong gains. EV sales rose to around 2.29 lakh units in FY26, accounting for 4.9% of total PV volumes, up from 2.8% a year earlier, with volumes growing over 85% year-on-year.

Competition heats up, outlook moderates

Quarterly trends pointed to shifting momentum. Tata Motors emerged as the strongest performer in the fourth quarter of FY26, outpacing Mahindra and indicating a stronger run rate heading into FY27. Meanwhile, Hyundai Motor India slipped to the fourth position after a marginal decline in annual sales.

Despite supply disruptions and elevated logistics costs linked to geopolitical tensions, the industry outperformed earlier expectations. However, the outlook for FY27 is turning more cautious.

Hemal Thakkar, Senior Director & Senior Practice Leader, Crisil Intelligence, said that while GST-led price cuts supported the second-half recovery, ongoing tensions in West Asia have begun to weigh on sentiment. He added that growth could remain challenging in parts of FY2027, as high base effects—especially in the second half—and supply-side constraints begin to weigh on the sector.

“The growth in FY2027 will remain challenging if the first half doesn’t see reasonable growth, as the high base effect in the second half will weigh on overall fiscal growth. Also, currently, we are assuming normal rainfall in our base case and the West Asia crisis abating within a week or two, under which we project domestic PV volumes to expand by just 3–5%, while domestic two-wheeler and three-wheeler volumes will grow by 5–7%, down from earlier expectations of 5–7% for PVs,” noted Thakkar.