Automakers in India are increasing investments in electric vehicles, with more than Rs. 240 billion (US$ 2.54 billion) of the Rs. 600 billion capital expenditure planned over the current and next financial years expected to be directed towards EV expansion, according to a credit ratings agency report released recently.

"Of the overall capex outlay of Rs. 600 billion expected over the current and next financial years, more than 40% is estimated to be allocated to portfolio expansion, supply chain localisation and the scaling up of EV production," Anand Kulkarni, Director, the credit ratings agency, said in the report.

The ratings agency stated that the investments come as electric passenger vehicles account for a larger share of the market, supported by changes in ownership costs, a wider range of product offerings and technological developments.

According to the report, average monthly E4W volumes increased by around 40% to approximately 26,000 units during the three months ended May 2026, while penetration rose to 6.1% from the financial 2026 average of 4.6%.

A senior executive at the credit ratings agency said that the long-term outlook for electric car adoption remains positive despite temporary disruptions.

"The reduction in goods and services tax (GST) on ICE vehicles in September 2025 temporarily narrowed the total cost of ownership (TCO) advantage of E4Ws and moderated their growth for a few months. Nevertheless, their long-term growth trajectory remains intact," Gupta said.

"E4W volumes are expected to more than double to 500,000 units by the next financial year from 220,000 units in the previous financial year, increasing penetration to 8%-10%," he further added.

The report identified three factors associated with the growth: an increase in model availability, improvements in driving range and changes in ownership economics.

It noted that the number of E4W models has doubled to around 20 over the past two financial years and could exceed 35 by the next financial year as more launches are planned in the sub-Rs. 1.5 million segment. EVs in the higher-priced segment now offer a range of 500-700 km per charge, while mid-range models provide 300-450 km, addressing concerns related to driving range.

At the same time, EV acquisition costs have declined by 10%-15% over the past two financial years due to product innovation and economies of scale, the report said.

However, the credit ratings agency cautioned that higher EV sales may not immediately translate into stronger profitability for automakers.

"Despite this, credit profiles are expected to remain supported by balance sheets and cash flows from existing ICE portfolios. However, rising E4W sales could dilute margins for OEMs in the near term due to limited scale, high initial fixed costs and competitive pricing strategies," said a senior executive at the credit ratings agency.

"Margins may increase over time as volumes rise and operating leverage improves," he further added.

The report stated that the pace of localisation, the expansion of charging infrastructure and the continuity of policy support, including low GST and road tax exemptions, will remain important factors affecting EV adoption in the years ahead.