The adoption of electric vehicles (EVs) in India's premium automobile sector has experienced a noticeable decline following the implementation of the revised Goods and Services Tax (GST) structure. According to key industry figures, EV penetration in the luxury segment dropped by nearly 3 percentage points in the GST 2.0 era, with traditional internal combustion engine (ICE) vehicles now offering a more compelling total cost of ownership.
Market Shift: Luxury Buyers Reconsider ICE Options
While the trend is observable across the broader market, the entry-level luxury segment is witnessing a more pronounced shift back towards petrol and diesel models. This change is primarily attributed to the widening price gap between EVs and ICE vehicles under the new tax regime. Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, provided specific data, noting a 2 to 3 percentage point decline in EV penetration across mass and luxury markets in October and November 2025.
"The major fluctuation is in the entry luxury EV segment," Iyer stated. He explained that for Mercedes-Benz, EVs are predominantly in the top-end luxury category, where price sensitivity is lower. Consequently, the downturn in luxury EV sales is largely driven by the entry-level segment. Within Mercedes-Benz India, EV penetration stands at 8% of total sales, but this figure jumps to 20% for vehicles priced above ₹1.5 crore.
Automaker Strategies: Balancing ICE Attraction with EV Momentum
Other luxury carmakers presented a nuanced view of the evolving landscape. Hardeep Singh Brar, President and CEO of BMW Group India, acknowledged that GST 2.0 has enhanced the attractiveness of their ICE portfolio. BMW passed on the full benefit of the tax reduction to customers, resulting in an average price cut of 6.7% on ICE models, coupled with attractive finance schemes.
However, Brar emphasized that EV demand remains robust. "Customers today are not driven by pricing alone. They value sustainability, lower running costs and future-ready technology," he said. BMW's EV sales, including the MINI brand, grew by over 130% year-on-year for the September to November period. The company's overall EV penetration is 21%, with a goal to reach 30% by 2030.
Audi's Perspective: A Market in Transition
Balbir Singh Dhillon, Brand Director of Audi India, offered a forward-looking perspective, suggesting the market is still absorbing the impact of the new GST framework. "In this evolving environment, our electric portfolio has continued to perform steadily, underscoring the growing acceptance of luxury EVs among Indian buyers," Dhillon noted. He revealed that the current allocations for the Audi e-tron range are sold out under the company's global planning cycle.
Looking ahead to 2026, Dhillon expressed cautious optimism for a more balanced demand outlook as the market adjusts to the revised taxation and gains greater policy and macroeconomic clarity.
Understanding the GST 2.0 Impact on Auto Prices
The GST 2.0 regime, effective from September last year, significantly altered the tax slabs for automobiles. It reduced the GST rate to 18% for smaller petrol, LPG, CNG, and diesel vehicles meeting specific engine capacity and length criteria. Conversely, all larger vehicles exceeding 1,200cc and 4,000mm in length were moved to a higher 40% GST slab, up from the previous 28% GST plus applicable cess. This restructuring fundamentally altered the price parity between certain ICE vehicles and their electric counterparts, influencing consumer calculations on total cost of ownership.
