Crisil Ratings: Easing rare-earth supply to drive high-teen E2W growth next fiscal

Total ownership-cost advantages support growth amid intensifying competition

Volume growth of electric two-wheelers (E2Ws) in India is expected to moderate to 12-13% this fiscal, from ~22% in the last, due to temporary disruptions in supply of rare-earth magnets and transient tailwinds of the goods and services tax (GST) rationalisation on internal combustion engine (ICE) models.

Next fiscal, we expect the growth to rebound to 16-18%, supported by a structural ownership-cost advantage. However, competitive pressure is creating divergent risk profiles, with legacy players better insulated, while new-age players continue to face weak unit-vehicle 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, indicates as much. These OEMs account for ~85% of the E2W volume.

Says Anuj Sethi, Senior Director, Crisil Ratings, "The supply disruption caused by shortage of rare-earth magnets had weighed on E2W volumes around mid-year. As availability began to ease, coinciding with the GST-led price revision in ICE models, OEMs relied on discounting and introduced lower-priced electric models to narrow the ICE-EV price gap. While this has supported a recovery in volumes in recent months, the impact of the earlier supply disruption is expected to limit full-year growth to 12-13%. With supply conditions improving, reflecting a gradual resumption of inflow of magnets from China alongside 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."

Meanwhile, E2W adoption continues to be supported by strong vehicle economics. While GST rate cuts have reduced the purchase cost of ICE vehicles, running costs favour E2Ws, at ~Rs 0.3/km versus Rs 2.0-2.5/km for ICE, continuing their advantage in total cost of ownership even as subsidies taper1.

This allows penetration to rise despite some moderation in near-term growth. E2Ws are expected to account for ~7% of the total two-wheeler volume by next fiscal, up from ~5.5% currently. For the record, scooters continue to drive adoption, with EV penetration at ~15%, and account for 90-95% of the E2W volume.

With incentives being phased out and the pace of decline in battery cost (which accounts for 35-40% of total costs) slowing after a sharp correction over the past two fiscals, price-led competition has narrowed. Increasingly, reliability and service are becoming more important differentiators, and this is where legacy OEMs are scoring high at present.

Says Poonam Upadhyay, Director, Crisil Ratings, "The market share of legacy players has increased to ~62% by January 2026 from ~47% a year earlier, clearly outperforming new-age players. The share gain reflects their stronger dealer reach and supplier ecosystems, alongside an expanded range of entry-level and mid-priced electric models that enables faster rollout, wider availability, and more consistent execution.

This shift is reshaping sector risk profiles. For legacy OEMs, electrification remains a portfolio extension, with E2Ws accounting for 5-6% of volumes, limiting earnings volatility. In contrast, new-age players are incurring Ebitda (earnings before interest, tax, depreciation and amortisation) losses of Rs 25,000-35,000 per vehicle.

These losses are currently being absorbed with the support of existing investor capital, while continued access to funding, including through strategic partnerships, will remain important for business continuity and expansion. Accelerating investments in dealer reach and after-sales infrastructure should support their volume momentum and gradually narrow per-vehicle losses over time, even as competitive intensity remains elevated.

Looking ahead, sustained growth in E2Ws will depend on urban mobility demand, broader adoption beyond early adopters, successful execution on cost reduction and localisation, evolution of subsidy policies, stability in raw material availability, and timely fund infusions for new-age players.

Source : Equity Bulls

Keywords

CRISILRatings INE007A01025 E2W RareEarthSupply