INDIA HAS SEEN a rise in demand for gas-guzzling sports utility vehicles (SUVs) in recent years. While there are several conventional ICE (internal combustion engine) SUVs in the market, only two are strong hybrids. That’s because the government’s policy emphasis is on electric vehicles and not much has been done to incentivise hybrid vehicles, which have higher upfront costs, just like EVs.

Of the 4.3 million cars sold in FY25, only 104,000 were hybrids. But despite fewer (five) models on offer, hybrid penetration rose from 2.1% in FY24 to 2.4% in FY25. In comparison, EVs accounted for 2.6% of total car sales in FY25 with as many as 17 mass-market models on offer.

Only a handful of Japanese automakers sell hybrid cars in the country. Toyota Kirloskar Motor accounts for over 80% market share in strong hybrid vehicles with models such as the SUV Urban Cruiser Hyryder, multi-purpose vehicle (MPV) Innova Hycross, sedan Camry, and luxury MPV Vellfire. India’s largest carmaker Maruti Suzuki India Ltd had two hybrid models until August: Grand Vitara and Invicto, rebadged versions of Toyota’s Hyryder and Hycross, respectively. It launched a new strong hybrid car, the Victoris SUV, in September. Meanwhile, Honda, another Japanese player, has a minuscule share in strong hybrid vehicles. The three Japanese carmakers put together corner half of India’s 4.3 million passenger vehicle market.

“Of the 4.3 million cars sold last fiscal, electric and strong hybrids accounted for just 5% of total sales. So, 95% of the market remains unaddressed. These conventional ICE cars will remain on the road for 15 years,” says Vikram Gulati, country head and executive vice president, corporate affairs and governance, Toyota Kirloskar Motor.

“Car sales in India are expected to cross the 6 million mark by 2030,” adds Gulati. “And as we go ahead, we will keep on adding more vehicles. This problem of 95% versus 5% may become 85% versus 15%. But given that the whole pie is increasing, the 85% [ICE] will be even more than petrol and diesel cars that we sell today.”

The growth, however, brings to light a critical challenge. Strong hybrid cars end up costing as much as diesel cars due to the existing tax structure, making them unattractive to a large section of buyers. The least expensive hybrid car in India, the Urban Cruiser Hyryder, costs around ₹16.81 lakh (ex-showroom), about ₹5 lakh more than the average selling price of a conventional ICE car.

Before the GST 2.0 reforms, hybrid cars were taxed at 43% as against 45-50% tax on conventional ICE vehicles. After September 22, there will be a uniform tax rate of 40% for both strong hybrids and conventional ICE cars.

To ease the tax burden, Uttar Pradesh has offered incentives such as road tax exemption.

All clean technologies have a high manufacturing cost, says Gulati. “Just like EVs, strong hybrids are much more expensive, compared to petrol and diesel. This becomes a bottleneck for their adoption… Taxation advantage helps in bridging that gap. In India, hybrids have a taxation advantage over petrol vehicles, but the issue is [that] the gap is too little.”

Kunal Behl, vice president, marketing and sales, Honda Cars India, agrees. “In Uttar Pradesh, after the road tax waiver, we got a very good response. Currently, U.P. contributes 35% to the sales of Honda City’s hybrid version, against the rest-of-India average of 10%,” he says.

“It [the road tax waiver] kind of takes away the unintended disadvantage that exists, thereby making it possible for consumers to look at hybrids as an option… In U.P., for instance, road tax waiver has eaten up petrol and diesel car sales, while boosting EVs. This busts the myth that it [hybrid sales] is at the cost of EVs,” says Gulati.

As Honda works to launch its first battery electric vehicle (BEV) in India next year, Behl says hybrids should get more incentives. “There are different ways to reach the goal of cleaner mobility. EV is the most promising way. But with the current situation where charging infra still has to improve in India, the easiest way to reach that goal is to follow the intermediate route of hybrid. But, for some reason, the tax structure of hybrid versus BEV is very different.”

The petrol efficiency of a hybrid is 30-35% higher compared with a petrol-only car, says Behl. “So, a similar reduction in tax should also happen. If the gap between petrol and hybrid in terms of pricing is too big, customers will not be able to choose hybrids,” Behl explains, adding that the only reason that is holding back people from going in for hybrids is their price tag.

This highlights the need for policy intervention, as price remains a key barrier to wider adoption despite the clear fuel efficiency advantages hybrids offer.

Strong hybrid cars currently cater to higher price segments (above ₹15 lakh), where buyers are less sensitive to cost and more willing to pay a premium. However, for cleaner technology to reach the mass market — the ₹10 lakh range — policy support through tax reforms is essential, says Gulati.

Rahul Bharti, senior executive officer, corporate affairs, Maruti Suzuki India Ltd, believes hybrid car volumes are key for them to become mass market. “Everything depends on volumes. Technological evolution can happen and we can work on R&D, provided we have some encouragement on volumes. Then we can work towards proliferating it in the mass segment.”

While hybrids offer a better driving experience and clear advantages in city conditions, Bharti notes that the limited annual usage (the average running per car is 12,000 km per year) makes it hard to justify the higher upfront cost. “But then, consumers like it for the feel of the drive,” he adds.

Bharti believes both technologies — hybrid and electric — contribute towards the broader goal of decarbonisation. “India still has a lot of pure petrol and diesel cars that need to be addressed. I don’t think one technology is hurting the other.”

With 40% tax vis-à-vis 5% for EVs, hybrids are at a disadvantage, says Puneet Gupta, director, India & ASEAN, S&P Global Mobility. “Hybrids make sense only if there are incentives. Otherwise, why will people buy hybrids? In states where incentives are in place, the penetration has really been deeper. The price economics comes into place,” says Gupta.

“I hope this trend of incentives on hybrid cars will continue because such cars reduce fuel consumption and help India cut down on fuel imports and CO2,” Hisashi Takeuchi, MD and CEO, Maruti Suzuki India, told Fortune India earlier this year. Maruti Suzuki is focussing on a multiple powertrain strategy to cut CO2 emissions.

Agrees R.C. Bhargava, chairman, Maruti Suzuki India. “If you sell only petrol and diesel [vehicles] and don’t sell other cleaner cars, you are creating pollution. The ideal thing is to sell as many EVs as you can, but 100% EV is not happening anywhere, not even in China. We believe there should be a differentiation (in taxation) based on fuel efficiency,” he says.

“We know EVs are good, but the EV era cannot come in one day. So there will be ICE vehicles. Somehow, we have to try to improve CO2 while introducing more and more EVs in the market. We will strongly pursue EVs but we will do whatever we can to introduce hybrids,” adds Takeuchi.

Except for a higher upfront cost, hybrids don’t face barriers such as charging anxiety which EVs do. “Most people in metros don’t have a dedicated car parking where they can put up a plug. So home charging [for EVs] becomes difficult,” says Gupta.

Offering a wider range of clean mobility options, therefore, becomes crucial. Carmakers such as Hyundai Motor India are now expanding their portfolios to include hybrids alongside EVs and ICE vehicles. After launching three EVs in India since 2019, the South Korean carmaker has realised that it can’t ignore strong hybrids. “By FY29-30, we aim to launch 26 new models and upgrades, including 6 EVs and 20 ICE vehicles, complemented by the introduction of eco-friendly powertrains such as hybrids,” MD Unsoo Kim was quoted in the company’s annual report.

“It’s not about hybrid versus EVs. In the nascent phase, you need to create an ecosystem to be self-reliant and we are seeing what happens when we are reliant on a particular geography [For instance, automakers are heavily reliant on China for EVs — from rare earth magnets to battery cells and its components]… It creates a lot of vulnerability,” says Gulati. “But then, to develop a local ecosystem for batteries, you need demand not only from EVs, but also from hybrids.”

“The more electrified vehicles you sell, the faster will be the transition towards clean technologies. This technology will have a big role to play,” he adds.

In the luxury segment, German carmakers such as BMW and Mercedes-Benz already have plug-in hybrid vehicles (PHEVs) in their portfolio. In the first six months of 2025, BMW sold 47 plug-in hybrid cars, according to data sourced from the government’s VAHAN website. Cleaner cars, including plug-in and strong hybrids, should get incentives not only on road tax, but also on GST, Vikram Pawah, the then president and CEO of BMW Group India, told Fortune India in July.

“If the government wants to promote the final aim of CO2 reduction, there needs to be a gradient that the cleanest technologies should be the least taxed so that people migrate towards cleaner vehicles,” Pawah had said. Pawah is currently heading the carmaker’s Australia and New Zealand operations.

Mercedes-Benz India MD and CEO Santosh Iyer says the luxury carmaker will consider bringing in more plug-in hybrids if there is a favourable tax structure. “We have fantastic plug-in hybrids which can do 100 km on a single charge and then you can shift to the combustion engine. Its use case is great for India. But then there are two powertrains in one car, making it a bit more expensive than an EV,” says Iyer. “The portfolio is ready. We have everything in the kitchen, it depends on the market, customer and polices.”

Agrees Jyoti Malhotra, MD, Volvo Car India. “To bring them [plug-in hybrids] here, we need to offer them at a price in which customers see value. Today, the tax structure is higher for hybrids. If the government makes changes, we can always bring plug-in hybrids,” says Malhotra.

As India charts its course towards cleaner mobility, hybrids can serve as a crucial bridge in the transition. A diversified approach — embracing EVs, hybrids, and cleaner ICE technologies — will be key to building a resilient ecosystem.