Hybrid vehicles may be the practical bridge India needs as its EV ecosystem evolves.
In brief
- Globally, hybrid vehicles have gained popularity over EV rivals, due to still higher prices of EVs. In the US and EU hybrid vehicles (plug-in and non-plug-in variants combined) outsold EVs in CY24
- Hybrid vehicles serve as a potential solution to meet stringent emission norms and consumer needs for cost-effective transportation.
- In India, the high GST rates on hybrids make them less financially viable compared to EVs.
Overview and global trends
Hybrid vehicles hold a unique position in the market, appealing to consumers who remain hesitant to fully transition to EVs due to concerns over range, infrastructure, or cost. Hybrids provide improved fuel efficiency and lower emissions compared to traditional internal combustion engine (ICE) vehicles, while offering more range and convenience than current EVs, particularly in regions with underdeveloped charging infrastructure.
Globally, hybrid technology was accelerated by the looming gas crisis in the US in the 1960s. It was the Japanese OEMs, Honda and Toyota, that brought mass-market solutions to life, and perfected the technology over the following decades.
As electric vehicles adoption has slowed in recent years due to higher prices, hybrid EVs have gained popularity over EV rivals in key global markets.
Indian landscape
The Indian automotive sector is poised to grow at a CAGR of around 6% between FY25-FY30, reaching approximately 5.75 million units. With upcoming emission norms like CAFÉ III and BS VII, OEMs will be compelled to adopt a mix of propulsion technologies to meet increasingly stringent requirements. However, the future of hybrid vehicles in India remains uncertain, as the government currently incentivizes EVs over Hybrids, making hybrid cars in India less financially viable for the mass market. Currently, hybrid EVs are placed at a disadvantage as they are currently taxed at 28% GST, relative to 5% GST on EVs. The effective tax rate, including additional cess and taxation slabs (an extra 15%), results in an overall tax rate to approximately 43% for hybrid vehicles.
Reducing the GST on hybrids to the same level as EVs could bring them to total cost of ownership (TCO) parity with petrol vehicles. Even a middle ground of bringing the GST at 18%, allows hybrid vehicles to have TCO parity with EVs. There are many reasons why the government should consider tax reforms for hybrid vehicles, or, at the very least, take the middle ground approach with hybrid vehicles. For several potential buyers, buying an EV is simply not an option, given their usage requirements, lack of adequate charging in their vicinity (rural markets, apartment complexes, etc.), or high upfront costs. Having hybrid options available gives buyers more options and increases the overall market of EV components. This favors the government's target to meet net zero targets in several ways:
- Boosting domestic EV component manufacturing
- Sustainable transition towards an EV-focused value-chain
- Time for development of supporting EV Infrastructure (EV charging and electrical grid)
Way forward for Indian players
As it stands, investments into developing dedicated hybrid electric platforms will not serve as a prudent investment for automotive players across the value chain. However, if taxations are relaxed on Hybrid vehicles, it would make sense for Indian OEMs to leverage the opportunity.
At best, the hybrid powertrain will serve as a stop-gap solution for the Indian market, while the electric vehicle ecosystem gets a chance to comprehensively develop. However, a full transition is expected to take beyond FY31.
In case of tax reforms for hybrid vehicles, globally leading OEMs, especially the ones operating in India, will have tried-and-tested series-parallel hybrid powertrains ready to deploy. Under such circumstances, Indian OEMs have the option of adopting the range-extender/series hybrid architecture for PVs. Most Indian OEMs are well poised to do this, given their pre-existing ICE and EV platforms. This will allow Indian OEMs to develop their EV supply chain, while serving the demand for hybrid vehicles, at relatively lower development cost and shorter timelines.
The article was first published in the Financial Express on 16-04-2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
