Easing Rare-Earth Supply to Drive High-Teen E2W Growth Next Fiscal: CRISIL

Electric two-wheeler (E2W) volume growth in India is expected to moderate to 12–13% in the current fiscal, down from around 22% last year, due to temporary disruptions in the supply of rare-earth magnets and the transient demand impact of GST rationalisation on internal combustion engine (ICE) models., CRISIL Ratings said. 

It said that growth is, however, expected to rebound to 16–18% next fiscal, supported by the structural total cost-of-ownership advantage of electric vehicles. That said, intensifying competition is creating divergent risk profiles, with legacy OEMs better insulated, while new-age, EV-only players continue to grapple with weak per-unit economics.

An analysis of 10 original equipment manufacturers (OEMs)—comprising four legacy players with ICE and E2W portfolios and six new-age EV-only players—which together account for nearly 85% of E2W volumes, underscores this trend, it said. 

Supply Chain Disruption

Commenting on the outlook, Anuj Sethi, Senior Director, Crisil Ratings, said, “The supply disruption caused by the shortage of rare-earth magnets weighed on E2W volumes around mid-year. As availability began to ease—coinciding with GST-led price revisions in ICE models—OEMs relied on discounting and launched lower-priced electric models to narrow the ICE–EV price gap. While this supported a recovery in volumes in recent months, the earlier supply disruption is expected to cap full-year growth at 12–13%. With supply conditions improving, including a gradual resumption of magnet inflows from China and initial steps by OEMs to diversify sourcing, growth is expected to re-accelerate to 16–18% next fiscal, assuming stable availability of rare-earth magnets.”

Despite near-term moderation, E2W adoption continues to be underpinned by strong vehicle economics. While GST rate cuts have lowered the upfront cost of ICE vehicles, running costs remain sharply in favour of E2Ws, at around Rs 0.3 per km, compared with Rs 2.0–2.5 per km for ICE vehicles, sustaining their total cost-of-ownership advantage even as subsidies taper.

E2W Pentration To Rise 

As a result, E2W penetration is expected to rise to around 7% of total two-wheeler volumes by next fiscal, from approximately 5.5% currently. Scooters continue to drive adoption, with EV penetration at about 15%, and account for 90–95% of total E2W volumes.

With incentives being phased out and the pace of battery cost declines—battery packs account for 35–40% of total vehicle costs—slowing after a sharp correction over the past two fiscals, price-led competition has narrowed. Increasingly, reliability and after-sales service are emerging as key differentiators, areas where legacy OEMs currently hold an advantage.

Poonam Upadhyay, Director, Crisil Ratings, said, “The market share of legacy players has increased to around 62% by January 2026, from about 47% a year earlier, reflecting their stronger dealer reach and supplier ecosystems. Their expanded range of entry-level and mid-priced electric models has enabled faster rollouts, wider availability, and more consistent execution.”

Sector Risk Profiles 

This shift is reshaping sector risk profiles. For legacy OEMs, electrification remains an extension of their broader portfolios, with E2Ws accounting for just 5–6% of volumes, thereby limiting earnings volatility. In contrast, new-age players continue to incur Ebitda losses of Rs 25,000–35,000 per vehicle, the agency said. 

These losses are currently being absorbed through existing investor capital. However, continued access to funding, including via strategic partnerships, will remain critical for business continuity and expansion. Accelerated investments in dealer networks and after-sales infrastructure should support volume momentum and gradually narrow per-vehicle losses over time, even as competitive intensity remains elevated.

Looking ahead, sustained growth in the E2W segment will hinge on urban mobility demand, adoption beyond early users, effective cost reduction and localisation, the evolution of subsidy policies, stability in raw material availability, and timely fund infusions for new-age players.