4-Point Overview
- US Tariff Adds New Pressure: A 25% tariff on Indian auto and tyre exports disrupts competitiveness in key global markets.
- Domestic Sales Stay Mixed: Passenger vehicle wholesales dip, while rural-driven 2W and bus segments offer signs of strength.
- CVs Witness Divergence: Retail sales rise, but wholesales dip amid EV shifts and rising used vehicle trends.
- FY2026 Outlook Cautiously Positive: Festive demand and infrastructure push may drive modest growth if macro hurdles are managed.
Introduction: Global Jitters, Local Juggles
The Indian auto sector finds itself at a crucial crossroads. Just as hopes were building for a stable FY2026, the United States delivered a jolt — a steep 25% tariff on Indian auto components and tyres. Given that the US absorbs over a quarter of India’s component exports and 17% of tyre shipments, the move has triggered deep concern.
Simultaneously, back home, the domestic auto market isn’t offering much comfort either. While some categories like buses and two-wheelers are showing resilience, others are grappling with high inventories, muted consumer sentiment, and macroeconomic clouds. The road ahead won’t be easy — but it isn’t without potential detours to recovery.
Exports Disrupted: India Loses Edge on Global Turf
The new US tariff regime comes at a critical time. Indian suppliers, particularly in the off-highway and replacement tyre categories, were already battling global demand slowdowns. Now, with countries like Vietnam, Indonesia, and Japan enjoying better tariff treatments, Indian exporters are in a tight spot.
Tyre makers, who previously held an edge over Chinese counterparts, may lose that edge. Analysts predict an urgent need for geographic diversification, cost-cutting, and smarter logistics strategies if Indian firms hope to retain global relevance.
Passenger Vehicles: Strong SUVs, Sluggish Sales
The passenger vehicle (PV) segment saw a 7% YoY decline in wholesale volumes in June 2025 and a 9% sequential dip, despite offers and festive discounts. Yet, the retail market didn’t fall off a cliff—demand stayed steady, largely thanks to SUVs, which contributed 65-66% of PV sales.
What’s concerning is the rising inventory, now at 55 days, which could spell trouble if festive demand doesn’t absorb the stockpile. ICRA forecasts 1–4% growth in PV wholesales for FY2026—but much depends on supply chain stability, especially for EV components like rare earth magnets.
Commercial Vehicles: Buses Lead the Charge
The CV segment is facing a tale of two trends. Wholesale volumes dropped 3.8% YoY in June, but retail volumes rose 6.6%, indicating that previous inventory is now getting cleared.
Light commercial vehicles saw 8.8% retail growth, but concerns are rising over the growth of electric three-wheelers and a shift toward pre-owned vehicles. Medium and heavy CVs grew 3.4% in retail sales, although their wholesale numbers remain subdued.
The real star? Buses, driven by replacement demand and government projects, are expected to see 8–10% YoY growth, providing much-needed stability in FY2026.
Two-Wheelers: Rural India Rides On
Even as 2W wholesales fell 4.3% YoY in June, retail sales grew 5.1%, thanks to semi-urban and rural demand. With 1.5 million units sold, the segment’s heart continues to beat steadily.
What’s especially promising is the 34% YoY jump in 2W exports, though challenges in forex availability and inflation in key markets like Nigeria persist. Meanwhile, electric 2Ws saw modest 5% sequential growth, holding a 6–7% market share.
If the monsoon behaves and rural incomes stay strong, ICRA projects 6–9% wholesale growth in this segment for FY2026.
Conclusion: Finding Grip on a Slippery Road
India’s auto industry is in a tight spot—caught between rising global trade headwinds and an uneven domestic recovery. The 25% US tariff stings, especially for exporters who were just regaining their footing.
But all is not doom and gloom. Steady demand from rural India, solid bus sales, and the SUV wave offer real hope. If the festive season delivers and infrastructure projects stay on course, FY2026 could still turn out to be a year of quiet resilience.
It’s not the smoothest ride—but with the right gears in place, progress is still possible.