Hybrid car market leaders Maruti Suzuki and Toyota Kirloskar Motor are set to benefit the most from a road tax waiver in Uttar Pradesh. This change puts hybrid vehicles on the same level as electric vehicles in India’s most populous state.
Popular hybrid models like Maruti’s Grand Vitara and Invicto, and Toyota’s Hyryder and Hycross, are now up to ₹3 lakh cheaper in Uttar Pradesh. This tax break, previously only available to electric vehicles, has now been extended to hybrids. As a result, shares of Maruti Suzuki India Ltd rose by 6.6% on the BSE, while the BSE Auto index increased by 2.17%.
On 5 July, the UP government announced that it would fully implement its 2022 policy waiving road tax for EVs and strong and plug-in hybrids. Although EVs had received this waiver since 2022, technical issues had delayed its application to hybrids until now.
Good News for Hybrid Makers
This is good news for hybrid vehicle manufacturers who have been asking for lower goods and services tax and compensation cess. However, it might cause concerns for EV makers who believe tax incentives should be limited to battery EVs, like Tata Nexon EV and Mahindra XUV400 EV. Cheaper hybrids could also impact the sales of petrol and diesel-powered vehicles in the state. Noida and Ghaziabad in UP are part of the National Capital Region (NCR), which also includes Delhi.
A senior executive at a major passenger vehicle manufacturer, speaking anonymously, said, “This move will likely reduce the sales of internal combustion engine vehicles, especially diesel, as the government focuses on promoting clean hybrid or EV technologies. We expect this to affect internal combustion engine sales more than EVs. More attractive pricing for hybrids due to the tax waiver is necessary to offset their current cost disadvantage. It’s uncertain if other states will follow this example.”
More Price Cuts Follow
Separately, Tata Motors and Mahindra & Mahindra announced price cuts for their premium SUVs by up to ₹1.4 lakh and ₹2.2 lakh, respectively. Tata Motors called this a ‘celebratory offer’ marking the sale of 2 million SUVs, while Mahindra said that increased capacity allows them to offer the XUV700 at a more accessible price, attracting new buyers.
Maruti Suzuki and Toyota Kirloskar dealers are promoting hybrid price benefits, with Toyota offering up to ₹4.4 lakh off on the Camry.
Struggle with Inventory
Interestingly, these price cuts come at a time when dealers are dealing with unsold cars, as retail sales are lagging behind wholesale deliveries.
Gaurav Vangaal, associate director at S&P Global Mobility, said, “Car manufacturers’ price cuts indicate they are facing demand issues. Higher inventory levels suggest deeper discounts this year compared to the past four years. We’ll need to watch the upcoming budget for potential tax cuts to boost consumption. However, increased discounts and marketing spend could negatively impact carmakers’ margins.”
In April, Mint reported that hybrid cars in India might remain expensive for a while, with a top panel tasked to review GST compensation cess on them yet to meet formally. In the absence of changes to automobile taxes, reducing on-road costs instead of ex-showroom prices is a sensible alternative strategy, according to an auto industry executive.
Passenger vehicle dealers have been seeing stocks increase since May, as retail sales showed signs of slowing growth from March. “We are seeing a build-up in inventory, especially for entry-level SUVs and some other models for which we usually expect high demand,” a dealer said anonymously.
How automakers respond to the UP government’s move with new pricing strategies for EVs and diesel vehicles will be crucial for the segment’s performance in the coming months.
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