Indian Auto Industry Faces Q1 2025 Slowdown, Two Wheelers & Passenger Vehicle Sales Dip

India’s auto market began the new fiscal year with a rare stumble. Despite a strong economy and healthy consumer sentiment, both passenger vehicles and two-wheelers saw their wholesale numbers dip between April and June 2025. The fall may look small on paper—a 1.4 percent drop in car dispatches and a 6.2 percent fall for two-wheelers—but behind those figures lies a deeper story about how the industry is adjusting to new challenges and changing buyer behaviour.

The total number of passenger vehicles shipped from factories to dealers during the quarter stood at just over 10 lakh. For two-wheelers, the figure was around 46.7 lakh. These were down from the same quarter last year. And yet, retail sales, the ones that actually matter at the showroom level, were up by 9.4 percent. At first glance, this looks like a contradiction. But the answer lies in how the system works and how buyers are reacting to changing prices, regulations, and seasonal factors.

After the High, the Cool Down

Last year was exceptional for the passenger vehicle industry. More than 4.2 million cars were sold, the highest ever. For three years in a row, the industry had seen double-digit growth. That sort of pace can’t be maintained forever. It creates a “high base” effect, which means any comparison looks poor even if volumes are still healthy. On top of that, in the last quarter of the previous fiscal, carmakers pushed large shipments into the market to stay ahead of China’s new export rules on rare-earth magnets. As a result, showrooms were already full at the start of April. Naturally, factory dispatches slowed down to allow retailers time to sell what they already had.

Prices Climb, Buyers Pause

The cost of owning a vehicle today is much higher than it was just a few years ago. Cars now cost about 70 percent more than they did six years ago. Safety rules, emissions upgrades, and rising demand for SUVs have pushed prices upward. In the two-wheeler segment, prices have gone up by nearly 20 percent since 2020. This April alone, new emission norms added another five percent to the sticker price.

Then there’s fuel. Petrol and diesel prices have stayed close to ₹100 per litre for months, adding to the daily cost of running a vehicle. Loan repayments are another concern. With bigger loans for costlier cars and bikes, many first-time buyers are backing off. Five years ago, they made up almost half of all car sales. Today, that share has fallen to 40 percent.

Rural Stress Hits Two-Wheelers

Motorcycles, especially the 100 to 125 cc ones that are a staple in India’s villages, are deeply connected to rural incomes. But the countryside hasn’t had it easy this summer. A delayed monsoon, intense heat, and cautious spending during elections meant fewer rural customers walked into dealerships. Scooter sales, which depend more on urban markets, held steady. But even that couldn’t lift the overall two-wheeler numbers.

The Problem of Too Much Stock

By the end of June, dealers had more vehicles than they could handle. For passenger vehicles, inventory levels touched 67 days, the highest in recent memory. SUVs kept things lively, but smaller hatchbacks and compact sedans were slower to move. Carmakers responded by reducing new deliveries from the factory, letting dealers sell off existing stock first. That’s why retail sales grew even as wholesale numbers dipped.

One More Supply Chain Hurdle

Just when the chip shortage and shipping delays seemed under control, a new challenge emerged. From April, China began controlling the export of rare-earth magnets—used in many small car components. Automakers had rushed to stockpile these parts in March, but the longer lead times meant production had to slow down again by June, especially for high-end variants.

Buyers Wait for the Next Model Year

From the middle of June, automakers began shipping cars labelled as 2026 models. Some buyers, particularly in cities or corporate fleets, chose to delay their registrations to get a newer vehicle ID. These delayed purchases will show up in the July–August numbers. But for now, they made June look weaker than it really was.

Forum Posts Mirror the Mood

Auto discussions online give a real sense of what people are feeling. One user from Mangalore noted that even basic commuter bikes are now crossing ₹90,000, making them too expensive for students or those just starting work. Another post explained how buyers are now seriously comparing used scooters with new ones, thanks to the rising EMI gap. These are small anecdotes, but they match the broader trend: price-sensitive buyers are thinking twice.

Not All News is Bad

SUVs are still driving ahead. Seven of the top ten best-selling models this quarter were SUVs, and the average selling price is now above ₹11 lakh. Meanwhile, exports are doing their part to balance the drop in local sales. Passenger vehicle exports rose by 13 percent, and two-wheelers jumped back by 23 percent as demand picked up in places like Latin America and Sri Lanka.

Electric vehicles are also slowly gaining ground. While they still make up a small portion of mass-market sales, premium brands are seeing stronger traction. BMW, for example, has already seen nearly one in five of its cars sold in 2025 come with electric power.

And financing could become easier in the coming months. The Reserve Bank of India has already cut rates, and this is slowly being passed on to customers. During the festive season, this could reduce monthly EMIs for SUVs by ₹500 to ₹1,000, helping fence-sitters finally take the plunge.

What to Watch Next

The next few months will depend heavily on how the monsoon progresses. Good rainfall boosts farm incomes, which in turn lifts rural two-wheeler sales. Car makers are also hoping that dealership inventory levels drop to more manageable levels—around 35 to 40 days—so they can start pushing new stock again.

There are also regulatory updates on the horizon. The industry is waiting for clarity on the next set of fuel efficiency targets. If these become stricter without enough lead time, prices could rise again.

Material costs are another factor. Steel, aluminium and lithium prices have eased since last year. That gives carmakers some room to offer discounts or new schemes without hurting their profits too much.

And finally, there are several exciting product launches due before Diwali. Mahindra’s five-door Thar, Maruti’s electric eVX, and other SUVs are expected to draw crowds and generate buzz.

A Dip, Not a Breakdown

This quarter’s slowdown looks sharp because it comes after years of fast growth. But it’s more like a pit-stop than a full-blown breakdown. Shoppers are still interested, but they’re more careful. They’re picking bigger, safer, and sometimes greener vehicles. And they’re negotiating harder.

Carmakers, too, are being cautious. They’re slowing production not because people have stopped buying, but because they want to avoid ending up with unsold stock. The rural buyer is temporarily on pause. The urban buyer is leaning more towards SUVs.

If rains come on time and input costs stay low, the auto market could pick up again sooner than expected. The wheels haven’t stopped. They’re simply choosing a different path.