Costly fuel pushes more Indians toward electric cars, but hurdles remain

India’s electric car market grew by a robust 25% in the year ending March 2026. Earlier this year, EVs also surpassed the key 5% mark in the country’s passenger vehicle segment — a level widely viewed as a tipping point for broader mass adoption.

“The transition is no longer merely directional but substantive,” India’s automobile dealers association said in a recent press statement.

Growth has been especially strong in larger vehicles priced above one million rupees ($10,481; £7,777), where one in ten cars sold is now electric. Electric three-wheelers and motorbikes are even further ahead, making up more than 30% and 15% of sales in their respective segments.

Interest in EVs has climbed sharply in recent months, particularly amid tensions in the Middle East.

India relies on imports for nearly 90% of its oil, and state-run fuel retailers have had to raise pump prices after holding them steady for about four years, as crude oil prices surged by 50%.

Prime Minister Narendra Modi has encouraged citizens to carpool, use public transportation and work remotely to reduce fuel consumption.

“This growing uncertainty, coupled with higher fuel prices, serves as an additional driver reinforcing the case for EVs,” Japanese brokerage Nomura said.

Beyond these short-term pressures, longer-term structural factors are also shaping consumer interest — most notably new regulatory standards known as CAFE-3, set to take effect in April next year and remain in place until March 2032.

These rules “significantly tighten regulations and are likely to trigger more visible acceleration in EV adoption,” wrote Bernstein analysts Venugopal Garre and Param Shah.

At present, India’s EV incentives are not tied to strict compliance targets or penalties, but CAFE-3 is expected to make such requirements binding, the analysts noted.

The draft regulations aim to cut average car emissions from 113g/km to 76g/km by 2032 — a 33% reduction.

Additionally, while roughly $1bn in fines across eight original equipment manufacturers (OEMs) were never collected under earlier rules, Bernstein suggests that CAFE-3 penalties are more likely to be enforced — further strengthening the push toward electrification.

Some regional governments are also stepping up. Delhi, one of India’s most polluted cities, has proposed ambitious draft policies to gradually phase out traditional internal combustion engine (ICE) vehicles and stop registering new ICE two- and three-wheelers by 2027.

Another supportive factor is a “healthy launch pipeline,” according to Nomura, which forecasts EV penetration in India’s passenger vehicle market to reach 9% by 2030.

In the two-wheeler category, demand is expected to rise on the back of a wave of affordable new models. Electric three-wheelers, meanwhile, are projected to outsell conventional versions by 2030, speeding up the overall transition.

“India’s shift is more concentrated in high-utilisation, cost-sensitive segments such as three-wheelers, suggesting the adoption curve could be non-linear,” Nomura said. Penetration in passenger vehicles and two-wheelers is likely to accelerate over time as affordability improves, charging networks expand and policy backing strengthens.

Despite these positive trends, India still trails leading global economies in EV adoption.

Nomura data show that EV penetration in China’s passenger car market jumped from 5.7% in 2020 to 53.3% last year. The European Union stands at 20%, while the United States is at 8%.

One major obstacle remains charging infrastructure.

Although the number of public charging stations has increased from 2,000 to over 10,000 in three years, the network is unevenly distributed. Just four of India’s 28 states account for more than half of all chargers.

The contrast with China is striking: China now has around 20 million public charging points, compared with India’s 10,000.

Limited infrastructure contributes to “range anxiety” — concerns about whether a vehicle can complete a journey on a single charge — which continues to deter many buyers, Nomura said.

Analysts also point to weaknesses in India’s domestic supply chain.

The country remains heavily dependent on global supplies of rare earth materials used in battery production. Although the government has announced plans to expand local manufacturing, China controls 70–80% of lithium and cobalt refining and nearly 90% of rare earth processing, according to KPMG.

These factors highlight geopolitical risks that could both delay India’s EV rollout and undermine cost competitiveness, the consultancy said in a recent report.

There are no quick fixes. Developing an integrated supply chain from mining to battery pack or magnet production can take more than a decade. India will need a combination of “short-term measures to secure supply and long-term strategies to build domestic capabilities,” KPMG said.

In the nearer term, however, clear and timely implementation of CAFE-3 rules will be crucial from a consumer standpoint, wrote Amitabh Kant, former CEO of the government think tank Niti Aayog, in the Indian Express.

Despite being under discussion for three years, the standards are still not finalised, though a definitive draft is expected soon.

“In the absence of regulatory clarity, manufacturers postpone investment decisions, supply chains evolve more slowly and the broader ecosystem remains uncertain,” Kant wrote, adding that policy certainty will be key to driving adoption.