India’s auto market is undergoing a visible realignment driven by uneven rural recovery, fiscal consolidation, and urban consumption trends. The world’s third largest auto market is also one of the most volatile ones with trends changing every quarter. The first quarter of FY 202526 also suggests varying trends that have been encapsulated in a recent study.
According to a new report by Deloitte titled Wheelwatch, demand for entrylevel vehicles and in rural areas remained largely subdued in the previous quarter. However, urban aspirations and sustainability preferences are accelerating demand for premium, hybrid, and electric vehicles. The report also points out key highlights from passenger vehicle and twowheeler segments along with the future of EVs.
Domestic sales of twowheelers declined by 6.2 percent in Q1 FY2026. Diving deep into the twowheeler segment, motorcycles fell by 9.2 percent, with commuter bikes dropping 10.4 percent. This reflects affordability pressures in lowerincome households. On the contrary, sales of sports or performance bikes grew by 10.7 percent, while luxury motorcycles rose by 0.9 percent, signaling resilient premium demand.
Sales of scooters remained flat but mass scooters gained 2.2 percentage points in share, signifying a shift in urban mobility. Registration for electric twowheelers increased by 34 percent increasing EV penetration to 6.2 percent from 4.9 percent last year. Kerala leads the charts when it comes to adoption of electric twowheelers with 14.9% penetration, which is more than double the national average. It is followed by Karnataka and Tamil Nadu.
Sales of passenger cars during the first quarter of FY2026 dipped by 1.4 percent YoY. Sales of small cars during this period dropped by 7.7 percent which has been attributed to a weak rural sentiment. On the other hand, midsized cars grew by 14.6 percent, showing urban buyers trading up for valuedriven upgrades.
The EV segment of passenger vehicles witnessed a massive jump of 75 percent YoY, which raised the penetration to 3.5 percent from 2 percent in Q1 FY2025. Kerala again led with 7.9% EV penetration, followed by Delhi, Karnataka, Maharashtra, and Tamil Nadu.
In Q1 FY2026, few state governments implemented new or revised their existing EV policy. For instance, Maharashtra extended its EV policy to 2030, aiming for 30 percent EV penetration, whereas Madhya Pradesh launched a new 5year EV policy (2025–2030). Meanwhile, the central government introduced added incentives such as 15 percent concessional import duty on premium EVs and 100 percent exemption on road tax and registration.
Three concussions have been derived from this Deloitte report.
