GST reform widens price gap; EV makers may face heat in festive season

Price cuts on petrol, diesel and CNG cars after GST reforms have widened the gap with EVs, making electric models less attractive to buyers in the near term

Electric vehicle (EVs) makers in India may be forced to offer more discounts or rethink their pricing strategies this festive season following the rollout of the Centre’s next-generation Goods and Services Tax (GST) reforms, scheduled to take effect on September 22, according to a report in The Economic Times.

 

With manufacturers of petrol, diesel, and CNG vehicles cutting prices to pass on the benefit of reduced GST rates, the cost gap between internal combustion engine (ICE) models and electric vehicles has widened, making EVs relatively less appealing to buyers in the short term.

 

Citing dealers and industry executives, the report added that most impact will be borne by electric vehicles that have comparable ICE models, including Tata Punch EV, Nexon EV, Curvv EV, Hyundai Creta EV, and MG ZS EV. These models are likely to face sharper scrutiny as their ICE siblings see a drastic rate cut after September 22.

   

Price difference between EVs and ICE models

 

After the GST revision, the price difference between Tata Motors' Nexon and its EV variant now stands at Rs 5.49 lakh as compared to Rs 4.59 lakh earlier. In the case of the Punch, the gap between the two models has now widened to Rs 4.59 lakh as compared to Rs 3.79 lakh earlier.

 

Hyundai Motor's Creta has also become much more competitive, with its ICE variant reducing the price by Rs 69,624 to Rs 19.49 lakh, making it more affordable than its EV counterpart.

 

ICE vehicles have seen a sharp correction in price, ranging from Rs 40,000 to Rs 1.5 lakh, depending on the brand and the model.  ALSO READ | Auto dealers shower discounts before GST shift with 600k vehicles in stock

Compact SUVs to gain the most from GST rate cut

 

Compact SUVs, large diesel SUVs, and entry-level cars are among the biggest gainers from the GST revision. Buyers now enjoy a dual benefit. While ICE cars have become cheaper on the one hand, on the other, the CNG models, already favoured by cost-conscious customers, have become even more appealing.

 

Such a shift is now presenting a challenge for Tata Motors in particular, which dominates the EV space with over 70 per cent market share. The company’s multi-powertrain strategy—offering the same nameplates across ICE, CNG, petrol, diesel, and EV versions—leaves it especially vulnerable to the widening price gap.

 

Business Standard recently reported that Maruti Suzuki also announced a price cut of up to Rs 1,30,000 across its models, effective from September 22. "In Alto K10, the reduction is in the range of 10.6-20 per cent; in S-Presso, 12.6-24 per cent; Celerio, 8.6-17 per cent; Wagon R, 8.7-14 per cent. This is a double bonanza for the festival season to accelerate motorisation in the country", Partho Banerjee, senior executive officer, Marketing and Sales, MSIL, said in a video conference.

 

Impact of tax cut to be muted in luxury cars?

 

In the luxury segment, the tax cut impact is likely to be muted. Elaborating further, Mercedes-Benz India's MD, Santosh Iyer, said, "If I look at a G-Wagon, the price delta with the electric version has narrowed from about ₹1 crore to ₹90 lakh, which doesn't change the equation. Similarly, the EQS SUV at around ₹1.33 crore remains competitive against a GLS at ₹1.60 crore."

 

GST reforms

 

On September 3, Finance Minister Nirmala Sitharaman announced a major overhaul in the GST reforms, bringing relief to the common man. The GST regime will now consist of two slabs- 5 per cent and 18 per cent, and a 40 per cent special slab for super luxury and sin items.

 

The announcement of introducing next-gen GST reforms was first made by Prime Minister Narendra Modi on Independence Day.