India's passenger vehicle retail sales drop 13.6% in May amid geopolitical tensions: ICRA

New Delhi [India], June 26 : The Indian passenger vehicle (PV) industry witnessed a 13.6 per cent contraction in retail sales in May 2025, primarily due to subdued consumer sentiment amid heightened geopolitical tensions in northern India following the India-Pakistan conflict, according to a report by credit rating agency ICRA.

The credit rating agency said that despite continued discounting by automakers, demand for PVs has softened from 3,49,939 units in April 2025 to 3.02,214 units in May 2025.

Meanwhile, the two-wheeler segment demonstrated stronger performance, with retail volumes growing 7 per cent year-on-year, supported by robust rural demand and a healthy harvest season.

As per the agency, the PV wholesale volumes remained steady at 3.4 lakh units in May 2025.

The availability of rare earth magnets (a key component for electric vehicles) is monitorable amid restrictions imposed by China.

PV Inventory levels rose slightly to 52-53 days, as reported by the Federation of Automobile Dealers Association (FADA).

Sport utility vehicles (SUVs) continued to be the most preferred segment in the passenger vehicle (PV) industry, driving 64-65 per cent of the overall PV volumes.

The firm added that the utility vehicles (UVs) are likely to remain the key volume drivers in the near term.

Export volumes of Passenger Vehicles saw a healthy YoY improvement of 24 per cent in May 2025, albeit on a smaller base. Maruti Suzuki remains the key exporter, followed by Hyundai.

However, the shortage of forex availability in certain African markets and inflationary pressures may constrain demand.

ICRA has lowered the wholesale volume growth of PVs to 1-4 per cent for FY2026 as against earlier projected growth of 4-7 per cent over FY2025, led by concerns regarding high inventory levels and supply shortages of critical components such as rare earth magnets, which have induced production constraints, especially for electric vehicles.

However, steady model launches from Original equipment manufacturers are expected to partially support the overall industry volumes in the current fiscal year.

In the two-wheeler segment, the domestic two-wheeler industry saw flattish wholesale volumes in May 2025, holding steady at 1.58 million units, as production shutdowns in April for supply chain adjustments and maintenance continued to have a lingering effect.

However, retail sales posted a moderate 7 per cent year-on-year growth, supported by robust demand in semi-urban and rural markets, buoyed by auspicious wedding dates and a strong Rabi harvest.

Electric two-wheelers (e2Ws) also saw a sequential uptick, with volumes rising 9 per cent to 100,266 units. Looking ahead, ICRA maintains a cautiously optimistic outlook, projecting 6-9 per cent wholesale volume growth for FY2026, driven by steady replacement demand, a potential urban market recovery, and healthy rural incomes, contingent on a normal monsoon, the agency added.

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