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Automobile Industry in India

January, 2014

Introduction

India represents one of the world’s largest automobile industries. Easy availability of finance and rising income levels are encouraging the middle class population to upgrade their two wheelers to a car. Besides, the growing organised used car market has also been a positive growth factor in the used car market of the country. Driven by the above factors, the used cars market is anticipated to grow at a compound annual growth rate (CAGR) of 16 per cent during 2013–17, highlighted the RNCOS report titled, ‘Booming Used Car Market in India Outlook 2017’.

India is quietly becoming a production hub of high-end vehicles meant for export to China. The US-based motorbike maker Harley Davidson, Austrian motorcycle manufacturer KTM and Mahindra & Mahindra have also preferred to set up manufacturing facilities in India than in the relatively low-cost China and export the output.

Furthermore, India is set to become Mercedes Benz’s fastest-growing market worldwide ahead of China, the US and Europe, according to internal projections. We expect growth rates to be the fastest in India globally, and expect sales to move up by 10 per cent over the next five years or so, as per Mr Matthias Luhrs, Vice-President (Global Sales), Mercedes Benz Cars.

Key Statistics

The passenger vehicles production in India touched 3.23 million units in 2012–13 and is expected to reach 10 million units by 2020–21. The industry is estimated to grow at a CAGR of 13 per cent during 2012–2021. In addition, the industry recorded exports worth US$ 9.3 billion in 2012–13 and is projected to touch US$ 30 billion by 2020–21, according to data from Automotive Component Manufacturers’ Association (ACMA).

The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during April 2000 to October 2013 was recorded at US$ 9,079 million, amounting to 4 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce, Government of India.

India is also expected to emerge as a centre for producing compact superbikes as Indian customers progress to the next level of biking. Several global and Indian bike makers plan to utilise India's mass-production base of 16 million two-wheelers to roll out sports bikes in the 250 cc capacity.

More so, the demand for premium sports utility vehicles (SUVs) will continue to grow. The market size of premium SUVs was estimated to be around 25,000 units annually in India.

Major Developments & Investments

  • Tata Motors Ltd plans to invest about £30 million (US$ 49.17 million) in the National Automotive Innovation Campus (NAIC) for research and development (R&D). The investment would be made through its subsidiary Tata Motors European Technical Centre (TMETC) at the University of Warwick campus, UK.
  • Volvo India Pvt Ltd plans to set up truck and bus manufacturing facility in Malur, Karnataka, with an investment of Rs 974 crore (US$ 158.32 million). The facility is expected to give employment to about 2,125 people.
  • Manufacturing companies in Japan continue to view India as the top destination for investments—over China, Thailand, Vietnam, Brazil and Indonesia—in the next three years, according to Mr Masanori Nakano, Consul General of Japan in Chennai.
  • Tata Motors-owned Jaguar Land Rover (JLR) has entered into an agreement with the state of Rio de Janeiro to build a manufacturing plant in Brazil with an investment of Rs 4,626 crore (US$ 751.95 million).
  • JBM Auto has formed a joint venture (JV) with Italian bus maker BredaMenarinibus to manufacture luxury buses in India. The Indo–Italian venture plans to set up a plant at Kosi, near Faridabad in Haryana, and produce 2,000 buses every year initially, at an investment of Rs 500 crore (US$ 81.27 million).
  • Mahindra & Mahindra (M&M) plans to develop the world's first hybrid technology that can be deployed in vehicles with manual transmission and enhance fuel efficiency by almost 20 per cent.
  • Amtek Auto has signed an agreement to buy Germany-based Kuepper Group of companies for about €200 million (US$ 272.73 million) in its second big European acquisition in 2013.
  • Honda Cars India will use the Ennore Port to export cars to South Africa. The infrastructure for car exports at Ennore Port is attractive and cost effective.