India’s shift away from internal combustion engines (ICE) is expected to initially focus on alternative fuels such as hybrids and compressed natural gas (CNG), rather than a rapid move to full electrification despite the Indian government’s strong push for increased electric vehicle (EV) production, according to a report by S&P Global Ratings.

EV adoption in India will progress with model launches that bring prices more in line with ICE models, and with improving charging infrastructure.

S&P also predicts that hybrids and CNG-powered vehicles will capture a meaningful market share alongside EVs, particularly in the light-vehicle and passenger commercial vehicle segments. The shift from ICE to alternative fuels is likely to precede a more rapid transition to full electrification.

Government policies on imports and foreign investment will continue to play a key role in India’s EV journey. Over the next three years, the country is expected to rely on imports like batteries to meet its EV production goals. The Indian government’s focus on boosting domestic EV production and localizing supply chains is crucial to achieving its target of 30 per cent EV penetration by 2030, it said in a report.

As the world’s most populous country, India’s vast market potential is attracting substantial EV-related investment. We estimate that the Tata and JSW groups alone will be investing over $30 billion into making EVs and EV materials over the coming decade, of which about $10 billion will be in SSEA (South & Southeast Asia).

S&P Global Ratings estimates that rated carmakers will spend more than $20 billion building EV production in this region over the next few years. This expansion is likely to strengthen the business position of certain rated entities. Chinese carmakers, for instance, are using SSEA production to diversify their operations and customer base, while mitigating competitive pressures at home. This regional production also opens doors for exports to markets like Europe, which impose high tariffs on Chinese-origin battery EV imports.

Japanese carmakers, meanwhile, are likely to see a gradual decline in market share as EVs challenge their dominance in light vehicle sales. However, they should retain a strong market position in the near term, thanks to their expertise in ICE and fuel-efficient hybrids. Japanese carmakers such as Toyota Motor Corp. and Honda Motor Co. Ltd. are leveraging their advantage in hybrid vehicles, which will remain a popular choice for consumers looking for fuel savings without the worry of limited charging infrastructure.

Korean carmakers are positioned in the middle and are investing in SSEA to capitalise on growth potential. By increasing production capacity in the region, they will be able to swiftly adapt to market demand, shifting between EVs and hybrids as needed. This strategy could help them offset challenges in China. The region, home to over 2 billion people, has some of the lowest car ownership rates in the world. With expanding economies, rising disposable incomes, ongoing urbanisation, and low levels of vehicle ownership, SSEA is poised for above-average growth in auto sales over the next few years.

Electric vehicles (EVs) are expected to lead this growth across many of these markets. Government initiatives, combined with the lower lifecycle costs of owning an EV, will help drive sales. The region is also seeing a surge in supportive policies to boost EV adoption and encourage local electric-car production.

Consumers in SSEA tend to prioritise affordability and are often more receptive to new technologies and brands, providing a favourable environment for EV uptake. We project that EV sales in the region will grow at a compounded annual rate of over 20 per cent from 2024 to 2026, said S&P Global.

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