Luxury EV Penetration Slips Under GST 2.0 as ICE Models Gain Cost Advantage

Entry Luxury Segment Sees Sharper Shift Toward ICE Vehicles​

Electric vehicle penetration in India’s luxury car segment has declined by nearly 3 percentage points in the GST 2.0 era, as internal combustion engine models now offer a more favourable total cost of ownership. Industry executives note that while the trend is visible across segments, the impact is most pronounced in the entry luxury category, where the price gap between EVs and ICE vehicles has widened under the revised tax structure.

According to industry players, EV penetration across both mass market and luxury segments fell by around 2 to 3 percentage points during October and November 2025. The shift is largely attributed to improved cost economics for ICE vehicles compared to electric alternatives.

Mercedes-Benz Highlights Entry-Level Luxury Pressure​

Mercedes-Benz India stated that the most significant fluctuation is being seen in the entry luxury EV segment. The company noted that EV demand remains relatively resilient at the top end of the luxury spectrum, where price sensitivity is lower.

For Mercedes-Benz India, electric vehicles account for 8 percent of overall sales. However, in the top-end luxury category priced above ₹1.5 crore, EV penetration stands at 20 percent, reflecting stronger acceptance among high-end buyers.

BMW Sees Strong EV Momentum Despite GST Changes​

BMW Group India said that while GST 2.0 has made its ICE portfolio more attractive, demand for electric vehicles continues to show strong momentum. The company passed on the full benefit of GST 2.0 to customers on ICE models, resulting in an average price reduction of 6.7 percent across its range.

During the September to November period, BMW Group India reported double-digit year-on-year growth in ICE car sales. At the same time, BMW and MINI electric vehicle sales grew by over 130 percent year on year. EVs currently contribute 21 percent of BMW’s total sales in India, with a stated target of increasing this share to 30 percent by 2030.

Audi Maintains Steady EV Demand​

Audi India said the GST 2.0 framework is still being absorbed by the market, and its full impact is likely to become clearer over the next year. The company indicated that its electric portfolio has continued to perform steadily despite the changing tax environment.

The Audi e-tron range has witnessed consistent demand, with current allocations fully sold out under the company’s global planning cycle. Audi remains cautiously optimistic about achieving a more balanced demand outlook in 2026 as the market adjusts to revised taxation, policy stability, and broader macroeconomic clarity.

GST 2.0 Reshapes Cost Dynamics​

Under the GST 2.0 regime implemented in September last year, petrol, LPG, and CNG vehicles with engine capacity below 1,200 cc and length not exceeding 4,000 mm, along with diesel vehicles up to 1,500 cc and 4,000 mm in length, were brought under an 18 percent GST rate. This was reduced from the earlier structure of 28 percent GST plus cess.

In contrast, automobiles exceeding 1,200 cc engine capacity and longer than 4,000 mm now fall under a 40 percent GST slab. Earlier, these vehicles were taxed at 28 percent GST plus cess ranging between 15 and 22 percent. The revised structure has altered price equations in the luxury segment, particularly affecting entry-level electric vehicles.