India’s electric vehicle (EV) penetration is expected to increase to 10-12% of overall vehicle sales in FY27, up from 8.5% in FY26, according to India Ratings and Research (Ind-Ra).
The ratings agency expects EV adoption to continue recording double-digit growth, although penetration is likely to remain uneven across vehicle segments due to differences in use-case economics, charging requirements and customer behaviour.
Ind-Ra said the sector’s medium-term credit profiles could improve gradually as volumes scale up, localisation increases and manufacturers benefit from operating leverage. However, the pace of electrification and profitability improvement will depend on the expansion of charging infrastructure, domestic manufacturing capabilities, localisation of key components and continued policy support.
“India's EV market continues to demonstrate healthy growth potential, with adoption increasingly supported by favourable ownership cost, improving use-case economics, a widening range of vehicle offerings, and rising consumer acceptance,” said Shruti Saboo, Director, Corporates, Ind-Ra.
Saboo added that the next phase of EV growth would depend on developing a domestic value chain and reducing dependence on imports, particularly for batteries and related technologies, alongside the expansion of charging infrastructure.
Two and Three-Wheelers to Lead Penetration
Ind-Ra expects EV adoption to remain strongest in segments where the economics of electrification are relatively favourable. Electric two-wheelers are projected to reach a penetration of 8-10% in FY27, compared with 6.6% in FY26, supported by lower operating costs, home-charging options and a wider product portfolio.
Electrification in long-distance mobility segments is expected to progress at a slower pace due to higher upfront costs, charging accessibility and driving-range considerations.
Electric passenger vehicle penetration is projected to increase to 6-8% in FY27 from 4.4% in FY26, supported by new model launches. Adoption is expected to remain concentrated in metropolitan markets and among higher-income consumers.
Electric bus penetration is also expected to rise to 6-8% in FY27 from 4.4% in FY26, aided by order books and government procurement programmes. However, deployment will depend on infrastructure readiness across state transport undertakings.
Market Consolidation Expected to Continue
Ind-Ra expects consolidation across EV segments to continue as competition increasingly shifts towards scale, distribution reach and customer confidence. Established automakers could benefit from their brand presence, dealer networks and after-sales service infrastructure as EV adoption expands beyond early adopters.
The electric passenger vehicle segment, however, is expected to remain comparatively dynamic, with market-share changes largely dependent on the success of new model launches. Manufacturers with larger product pipelines, execution capabilities and financial flexibility are expected to be better positioned to capture incremental demand.
Profitability Remains a Challenge
The EV sector remains investment-intensive, with most electric two-wheeler, three-wheeler and passenger vehicle manufacturers reporting EBITDA-level losses in FY26 due to fixed costs and investments in technology, localisation, manufacturing capacity and market development.
As a result, Ind-Ra expects near-term credit quality to remain linked to sponsor strength, financial flexibility and access to capital. Several EV businesses are backed by larger parent groups or significant equity funding, providing balance-sheet support while operations remain under profitability pressure.
The ratings agency expects electric two- and three-wheeler businesses to potentially break even over the next two to three years as volumes increase and cost structures improve. Electric bus manufacturers are relatively better positioned, with EBITDA margins of 10-12%, according to Ind-Ra.
Localisation and Charging Infrastructure Remain Key
India’s EV industry continues to depend heavily on imported battery cells, critical minerals and other high-value components, exposing manufacturers to supply-chain risks and keeping battery costs elevated over the near to medium term.
Charging infrastructure also remains a constraint, particularly for highway and inter-city applications, which could limit the pace of adoption in long-distance mobility segments.
Ind-Ra said the next phase of electrification would depend on deeper localisation, expansion of charging infrastructure, development of domestic battery manufacturing capabilities and stronger local supply chains.
Policy initiatives, including the Production-Linked Incentive scheme and the PM E-Drive programme, are expected to support ecosystem development, although their benefits are likely to materialise gradually. Progress in infrastructure, localisation and domestic supply-chain development will therefore remain key to the pace of EV adoption and profitability improvement, the ratings agency said.