Advantage India
Robust
Demand
* Growing working population and expanding middle class are expected to remain key demand drivers.
* By 2025, 4 million of EVs could be sold each year and 10 million by 2030. The market is expected to reach US$ 206 billion by 2030.
Export
Opportunities
* India is emerging as a global hub for auto component sourcing and the industry exports over 25% of its production annually.
* Auto component exports are expected to grow and reach US$ 30 billion in FY26.
* India has a competitive advantage in auto components categories such as shafts, bearings and fasteners due to large number of players. This factor is likely to result into higher exports in coming years.
Policy
Support
* 100% FDI is allowed under the automatic route for auto components sector.
* Production Linked Incentive (PLI) schemes on automobile and auto components are expected to bring a capex of Rs. 74,850 crore (US$ 9.58 billion) in the next five years.
Competitive
Advantage
* A cost-effective manufacturing base keeps costs lower by 10-25% relative to operations in Europe and Latin America.
* India is the second largest steel producer globally, hence has a cost advantage.
Introduction
India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. The two-wheeler segment dominated the automobile industry because of the Indian middle class, with automobile sales standing at 17.51 million units in FY22.
Significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles and auto components. Hence, the Indian automobile industry has a considerable impact on the auto component industry.
India’s auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for 2.3% of India’s GDP and provided direct employment to 1.5 million people. By 2026, the automobile component sector will contribute 5-7% of India's GDP.
The industry is a leader in exports and provides jobs to over 3.7 crore people. From FY16-FY22, the industry registered a CAGR of 6.35% and was valued at US$ 56.50 billion in FY22. Due to the high development prospects in all vehicle industry segments, the auto component sector is expected to see double-digit growth in FY22. The industry is expected to stand at US$ 200 billion by FY26.
Market Size
India’s auto components industry’s market share has significantly expanded, led by increasing demand for automobiles by the growing middle class and exports globally. Due to the remarkable growth in demand for Indian auto components, several Indian and international players have entered the industry. India’s auto component industry is broadly classified into organised and unorganised sectors. While the unorganised sector consists of low-valued items and mostly serves the aftermarket category, the organised sector serves OEMs and includes high-value precision instruments.
The automobile component industry turnover stood at Rs. 4.20 lakh crore (US$ 56.5 billion) between April 2021-March 2022 the industry had revenue growth of 23% as compared to FY18-19. In FY22, exports of auto components went up 43% to Rs. 1.41 lakh crore (US$ 19 billion). As per the Automobile Component Manufacturers Association (ACMA) forecast, auto component exports from India is expected to reach US$ 30 billion by 2026. The auto component industry is projected to record US$ 200 billion in revenue by 2026. Strong international demand and resurgence in the local original equipment and aftermarket segments are predicted to help the auto component industry grow 20-23% in FY22.
Investments
The Foreign Direct Investment (FDI) inflow into the automotive industry stood at US$ 33.54 billion between April 2000-June 2022, as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
Some of the recent investments made/planned for the auto component sector are as follows:
- In November 2022, auto components maker Sona BLW precision forgings ltd. announced its plans to increase capex by Rs. 1,000 crores (US$ 123.28 million) for its electric vehicles business.
- In March 2022, Minister of State for Power and Heavy Industries Mr. Krishan Pal Gurjar, said that Indian and foreign automobile manufacturers have taken initiatives to develop hydrogen fuel cell vehicles.
- In June 2022, German auto component major ZF inaugurated and expanded its new tech centre in India.
- In January 2022, e-bike maker Emotorad announced plans to raise US$ 25 million to expand in the US markets.
- In December 2021, Exponent Energy, an Electric Vehicle (EV) start-up, secured a pre-series funding of US$ 5 million.
- In December 2021, India’s leading automobile platform CarTrade Tech invested US$ 100 million for a new acquisition and to accelerate growth.
- In October 2021, Wheels India announced it would invest an additional Rs. 37 crore (US$ 4.95 million) this year to support global service demand.
- In October 2021, Lucas TVS announced a 20% capacity expansion of its auto and non-auto businesses by the end of 2021.
- In October 2021, Hero Motor formed a joint venture with Japanese two-wheeler major Yamaha to manufacture electric motors for e-bicycles for the global market.
- In October 2021, the Maharashtra government signed an MoU with Causis E-Mobility Pvt. Ltd., a joint venture of UK-based Causis Group, to set up a zero-emission EV manufacturing facility at Talegaon, near Pune, with an investment of Rs. 2,800 crore (US$ 317.96 million).
- In October 2021, Sona BLW Precision Forgings Limited, through its wholly owned subsidiary Sona Comstar eDrive Private Limited (Sona Comstar), entered a collaboration agreement with Israel's IRP Nexus Group Ltd. to develop, manufacture and supply magnetless drive motors and matching controller systems for electric two- and three-wheelers.
- In October 2021, auto component manufacturer MM Forgings Ltd. (MMF) acquired CAFOMA Autoparts for Rs. 33 crore (US$ 4.38 million).
- In October 2021, TVS Motor Company, collaborated with Tata Power, to boost the comprehensive implementation of Electric Vehicle Charging Infrastructure (EVCI) across India and deploy solar-powered technologies at various TVS Motor locations.
- At the Investment Conclave - 2021 in Chennai, the Tamil Nadu government stated that it received investment commitments totalling Rs. 28,508 crore (US$ 3.85 billion) from 49 companies. Electronics, automotive components, industrial parks, information technology and manufacturing are some of the sectors where these investments are expected to generate about 83,482 jobs in the state.
- The Indian government has outlined US$ 7.8 billion for the automobile and auto component sector in Production-Linked Incentive (PLI) schemes under the Department of Heavy Industries.
- In May 2021, the Government of India approved a PLI scheme for manufacturing advanced chemistry cell batteries at an estimated outlay of Rs. 18,100 crore (US$ 247.3 million).
- In March 2021, the government announced plans to offer fresh incentives to companies manufacturing EVs as part of a broad auto sector scheme. The scheme is expected to attract US$ 14 billion of investment in the next five years.
- In February 2021, Vedanta Resources launched its newest product — aluminium cylinder head alloy — a crucial raw material for manufacturing cylinder heads and other automotive components.
- A cumulative investment of around Rs. 12.5 trillion (US$ 180 billion) in vehicle production and charging infrastructure would be required until 2030 to achieve India’s EV ambitions. This is likely to boost demand for auto components from local manufacturers.
- In January 2021, Suzuki Motor Corp. and Hyundai Motor Co. announced plans to explore ways to make India a key global hub for sourcing components and enable a sharp rise in vehicle exports from the country.
- In January 2021, French battery system supplier Forsee Power pledged to invest Rs. 82 crore (US$ 11.18 million) in phase 1 of the India project.
Government Initiatives
The Government of India’s Automotive Mission Plan (AMP) 2006-26 has been instrumental in ensuring growth for the sector. The Indian automobile industry is expected to achieve a turnover of US$ 300 billion by 2026 by expanding at a CAGR of 15% from its current revenue of US$ 74 billion.
In November 2020, the Union Cabinet approved a PLI scheme in automobile and auto components with an approved financial outlay over a five-year period of Rs. 57,042 crore (US$ 8.1 billion). In September 2021, the Indian government issued notification regarding a PLI scheme for automobile and auto components worth Rs. 25,938 crore (US$ 3.49 billion). In February 2022, the government received an investment proposal worth Rs. 45,016 crore (US$ 6.04 billion) from 20 automotive companies under the PLI Auto scheme. This scheme is expected to create an incremental output of Rs. 2,31,500 crore (US$ 31.08 billion).
The government’s AMP 2016-26 will help the automotive industry grow and will benefit the economy in the following ways:
- The auto industry’s GDP contribution will rise to over 12%.
- Additional ~65 million direct and indirect jobs will be created.
- End-of-life policy will be implemented for old vehicles.
Road Ahead
The rapidly globalising world is creating newer opportunities for the transportation industry, especially while shifting towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto component manufacturers. To help them adjust to the shifting dynamics of the sector, the Indian government has already offered various production incentives. India is also investing heavily in electric car infrastructure.
In December 2020, Power PSU JV EESL announced a plan to install about 500 EV charging stations in the country. The number of charging stations stood at 1,800 in March 2021 and is expected to reach 4 lakh by 2026. This would make it easier for the auto component industry to take advantage of the EV opportunity and expertise in EV components manufacturing, thus helping India on a global scale. This, coupled with the shift in global supply chains, will help the Indian global automotive component trade to expand 4-5% to US$ 80 billion by 2026. Moreover, the Indian auto component industry is predicted to become the third largest in the world.
References: International Organization of Motor Vehicle Manufacturers, Media Reports, Press Releases, Department for Promotion of Industry and Internal Trade, Automotive Component Manufacturers Association of India, Society of Indian Automobile Manufacturers
Note: Conversion rate used in November 2022, Rs. 1 = US$ 0.012, * - Includes automobile and auto components, E - Estimated
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