Advantage India
Growing
Demand
*Rising middle-class income and a huge youth population will result in strong demand.
*In January 2024, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 23,28,329 units.
*The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by 5 times to US$ 1,318 billion.
*In April 2024, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 23,58,041 units.
Opportunities
* India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
* Focus is shifting to electric vehicles to reduce emissions.
* By 2030, the Indian government has committed that 30% of the new vehicle sales in India would be electric.
Rising
Investment
* The automobile sector received a cumulative equity FDI inflow of about US$ 35.40 billion between April 2000 - September 2023.
* India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.
* The automobile sector received a cumulative equity FDI inflow of about US$ 35.65 billion between April 2000 - December 2023.
* The automobile sector received a cumulative equity FDI inflow of about US$ 36.268 billion between April 2000 - March 2024.
Policy
Support
* The Automotive Mission Plan 2016-26 is a mutual initiative by the Government of India and the Indian automotive industry to lay down the roadmap for the development of the industry.
* The FAME Scheme was extended for a further period of 2 years up to March 31st, 2024.
Introduction
The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. The two-wheelers segment dominates the market in terms of volume, owing to a growing middle class and a huge percentage of India’s population being young. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fueled by new trends including the electrification of vehicles, particularly three-wheelers and small passenger automobiles.
India enjoys a strong position in the global heavy vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck manufacturer in the world. India’s annual production of automobiles in FY23 was 25.9 million vehicles. India has a strong market in terms of domestic demand and exports. In April 2024, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 23,58,041 units. In FY23, total automobile exports from India stood at 47,61,487. This sector's share of the national GDP increased from 2.77% in 1992-1993 to around 7.1% presently. It employs about 19 million people directly and indirectly.
India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India such as the Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market by 2022.
Market Size
The Indian passenger car market was valued at US$ 32.70 billion in 2021, and it is expected to reach a value of US$ 54.84 billion by 2027 while registering a CAGR of over 9% between 2022-27. The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by 5 times to US$ 1,318 billion.
In June 2024, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 23,36,255 units. In FY24, the total production of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles was 2,84,34,742 units.
In the April-June of 2024, total production of passenger vehicles*, commercial vehicles**, three wheelers, two wheelers, and quadricycles was 7.5 million units.
India accomplished a significant milestone, with the sale of 13,25,112 EVs in FY24 (till January 2024).
The electric vehicle (EV) market is estimated to reach US$ 7.09 billion (Rs. 50,000 crore) in India by 2025. A study by CEEW Centre for Energy Finance recognised a US$ 206 billion opportunity for electric vehicles in India by 2030. This will necessitate a US$ 180 billion investment in vehicle manufacturing and charging infrastructure.
According to NITI Aayog and the Rocky Mountain Institute (RMI), India's EV finance industry is likely to reach US$ 50 billion (Rs. 3.7 lakh crore) by 2030. A report by the India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, the projection for the EV battery market is expected to expand at a CAGR of 30% during the same period.
Indian automotive industry is targeting to increase the export of vehicles by five times during 2016-26. In FY23, total automobile exports from India stood at 47,61,487. Indian automobile exports of two-wheelers stood at 36,52,122 in FY23.
Investments
To keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The automobile sector received a cumulative equity FDI inflow of about US$ 35.65 billion between April 2000 - December 2023. India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.
Some of the recent/planned investments and developments in the automobile sector in India are as follows:
- The Renault-Nissan alliance is stepping up its investments in India plans to invest US$ 600-700 million at its Chennai-based facility to step up platform localisation and improve sophistication levels in manufacturing.
- Mercedes Benz will make an investment of Rs 3,000 crore (US$ 360.14 million) in Maharashtra.
- In March 2024, Tata Motors Group has signed a facilitation Memorandum of Understanding (MoU) with the Government of Tamil Nadu to explore setting-up of a vehicle manufacturing facility in the state. The MoU envisages an investment of US$ 1,081.6 million (Rs. 9,000 crores) over 5-years.
- Tata Motors, in April 2024, announced the inauguration of a new commercial vehicle spare parts warehouse in Guwahati.
- In April 2024, Maruti Suzuki India Limited, commissioned another vehicle assembly line at its Manesar facility.
- In February 2024, Hyundai Motors has announced it will invest over US$ 3.85 billion (Rs 32,000 crore) from 2023 to 2033 in expanding its EV range and enhancing its current car and SUV platforms.
- In January 2024, Mercedes-Benz is set to invest US$ 24.04 million (Rs 200 crore) in India in 2024 and is gearing up to introduce more than a dozen new cars, including EVs this year.
- In February 2024, Klaus Zellmer CEO of Skoda Auto said India is the most promising growth market for Skoda Auto and Skoda Auto India is looking to increase its share in the Indian market to 5% by 2030.
- In April 2024, Hero Motocorp said it has opened an assembly facility in Nepal in partnership with its distributor CG Motors with capacity of 75,000 units per annum.
- Ola Electric IPO to be the first auto company in India to launch an IPO in over two decades (20 years). It has an expected size of US$ 1.01 billion (Rs. 8,500 crore).
- In January 2024, BMW sold 1,340 luxury cars, the highest in the segment, which gave it a market share of 0.34%. Mercedes-Benz sold 1,333 cars in January 2024.
- In January 2024, Hyundai Motor India Limited announced US$ 743.8 million (Rs. 6,180 crore) investment plans in the state of Tamil Nadu including US$ 21.7 million (Rs. 180 crore) towards a dedicated ‘Hydrogen Valley Innovation Hub,’ in association with IIT- Madras.
- In January 2024, Hyundai Motor India Ltd. finalized the acquisition and transfer of specified assets at General Motors India's Talegaon Plant in Maharashtra and inked an MoU with the Government of Maharashtra committing to an investment of US$ 722 million (Rs. 6,000 crore) in the state.
- In January 2024, Mahindra & Mahindra Ltd. and the India-Japan Fund ("IJF"), managed by the National Investment and Infrastructure Fund Limited ("NIIF"), entered into a binding agreement, with IJF committing to invest US$ 48.1 million (Rs. 400 crore) in Mahindra Last Mile Mobility Limited (MLMML).
- In January 2024, at the Vibrant Gujarat Global Summit, Maruti Suzuki announced the investment plans in Gujarat with a New Greenfield plant and a fourth line in SMG.
- In December 2023, Tata Passenger Electric Mobility Ltd. (TPEM) and Bharat Petroleum Corporation Limited (BPCL) signed an MoU to jointly establish 7,000 public charging stations nationwide to enhance customer satisfaction.
- In December 2023, Maruti Suzuki India Limited entered into an agreement with the Government of Haryana to establish the second Japan-India Institute for Manufacturing (JIM) as part of its corporate social responsibility (CSR) initiative. The company will invest US$ 698 thousand (Rs. 5.8 crore) to upgrade the existing ITI Kansala into a JIM.
- In December 2023, Hero MotoCorp announced a partnership with Ather Energy for an interoperable fast-charging network in India which will cover 100 cities with over 1900 fast-charging points.
- In November 2023, TVS Motor announced its entry into the European market through a distribution agreement with Emil Frey, a renowned automotive distribution company with a century-long legacy.
- In November 2023, SAIC Motor and JSW Group announced a strategic joint venture to accelerate growth with focus on green mobility.
- In November 2023, Tata Motors inaugurated its state-of-the-art Registered Vehicle Scrapping Facility in Chandigarh.
- In October 2023, Hero MotoCorp inaugurated its first state-of-the-art premium dealership in India.
- In October 2023, Tata Motors signed a definitive agreement to acquire a 27% stake in Freight Tiger, a software-as-a-service (SaaS) company, for US$ 17.99 million (Rs. 150 crore).
- India accomplished a significant milestone, with the sale of 8,47,439 EVs in FY24 (till August 2023). A y-o-y growth of 209.17% was witnessed with 1.02 million registered EVs in FY23, as compared to FY22.
- In July 2023, Renault Nissan announced plans to invest US$ 1,68,762.86 (Rs. 1.4 crore) to upgrade infrastructure at eight schools near Chennai.
- In July 2023, Mahindra & Mahindra was in advanced talks with British International Investment (BII) and some other global investors to raise up to US$ 602.72 million (Rs. 5,000 crore) for its electric vehicles (EV) unit.
- In June 2023, Tata Motors announced to invest US$ 2 billion towards developing new products and platforms over the next four years.
- In June 2023, Hero MotoCorp revealed plans to invest up to US$ 180.81 million (Rs. 1,500 crore) for developing premium bikes and EVs in India.
- In June 2023, Kinetic Green Energy and Power Solutions revealed plans to raise up to US$ 100 million by selling a 10-15% stake in the company to investors.
- In May 2023, Maruti Suzuki India revealed plans to invest over US$ 5.5 billion to double capacity by 2030.
- In April 2023, Power Finance Corporation Ltd (PFC) approved US$ 76.39 million (Rs. 633 crore) loan for 5,000 passenger EVs and 1000 cargo EVs.
- In March 2023, the Central government sanctioned US$ 72.41 million (Rs. 800 crore) under FAME India Scheme Phase II to Indian Oil (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL), for setting up 7,432 public fast charging stations across the country.
- In the January-June period this year, Mercedes-Benz posted its best-ever half-yearly sales in India at 8,528 units, a growth of 13% a year-ago. During the same period BMW and Audi came at the 2ndand 3rd position with sales of 5,867 and 3,474 units, respectively.
- In February 2023, Nissan and Renault revealed plan to invest US$ 600 million in India over the next 3-5 years to expand their market share in passenger cars and electric vehicles.
- In February 2023, German luxury car maker Audi India began local production of the Audi Q3 and Audi Q3 Sportback at the Skoda Auto Volkswagen India Private Limited (SAVWIPL) plant in Aurangabad.
- In January 2023, MG Motor India announced plans to invest US$ 100 million to expand capacity, eyes 70% growth in 2023.
- In January 2023 at the Auto Expo 2023, Tata Motors announced to launch Tata Altroz CNG.
- Tata Group Chairman, Mr. N Chandrasekaran said that "EV contribution in our portfolio is likely to increase to 25% in five years and reach 50% by 2030, thus significantly increasing investments in this sector” in January 2023.
- In January 2023, Global chief executive officer (CEO) Mr. Ola Kallenius said that India was Mercedes-Benz’s fastest-growing market worldwide in 2022 and plans on investing more.
- Indian carmakers commit US$ 10 billion to add new capacity of 2.2 to 3 million units.
- In December 2022, Mahindra & Mahindra to invest US$ 1.2 billion (Rs. 10,000 crore) for an EV manufacturing plant in Pune.
- In November 2022, Maruti Suzuki India announced plans to spend nearly US$ 865.12 million (Rs. 7,000 crore) on several projects this year, including the building of its new facility in Haryana and the introduction of new models.
- In October 2022, the total production of passenger vehicles*, three wheelers, two wheelers, and quadricycles was 2,191,090 units.
- In October 2022, Maruti Suzuki was India’s biggest car seller, with 136,700 units sold.
- In October 2022, Hero MotoCorp sold 507,587 two-wheelers, the highest in the segment, which gave it a market share of 32.31%.
- In September 2022, Kinetic Engineering Limited (KEL) invested in Ahmednagar to set up a dedicated production line with an initial capacity of 5,000 sets per month.
- In September 2022, Maruti Suzuki launched the Grand Vitara at a starting price of US$ 12,915 (Rs. 10.45 lakh).
- In September 2022, Hero MotoCorp announced an investment of US$ 60 million in California-based Zero Motorcycles to collaborate on the development of electric motorcycles.
- In August 2022, Volkswagen Group's Indian subsidiary, Skoda Auto Volkswagen India, has begun a feasibility study for its next phase of investment in India after rolling out its India 2.0 strategic plan.
- In July 2022, TVS Motor lines up fresh investments of US$ 120 million (Rs. 1,000 crore) in EV push.
- In April 2022, Tata Motors announced plans to invest US$ 3.08 billion (Rs. 24,000 crore) in its passenger vehicle business over the next five years.
- In March 2022, MG Motors, owned by China's SAIC Motor Corp, announced plans to raise US$ 350-500 million in private equity in India to fund its future needs, including EV expansion.
- In March 2022, Hyundai plans US$ 79.2 billion investment through 2030, to focus majorly on EVs.
- In February 2022, a memorandum of understanding (MoU) was signed between electric two-wheeler company Ather Energy and Electric Supply Companies (ESCOMs) of Karnataka for setting up 1,000 fast charging stations across the state.
- In February 2022, Tata Power and Apollo Tyres Ltd announced a strategic partnership for the establishment of 150 public charging stations across India.
- In January 2022, Kinetic Green Energy announced plans to invest ~US$ 10-13 million (Rs. 80-100 crore) in a two-wheeler EV project, in collaboration with Chinese EV major Aima Technology Group.
- Two-wheeler EV maker HOP Electric Mobility, a diversified business venture of Rays Power Infra, is looking at investing US$ 13.24 million (Rs. 100 crore) over the next two years to expand manufacturing capacity for its EVs.
- Investment flow into EV start-ups in 2022 (until September 15) has raised funds worth around US$ 673 million, according to Fintrackr.
- In December 2021, TVS Motor Company and BMW Motorrad, announced a partnership in the two-wheeler EV space, with plans to release their first electric two-wheeler within the next two years.
- In December 2021, Hyundai announced plans to invest US$ 530.25 million (Rs. 4,000 crore) in R&D in India, to launch six EVs by 2028.
- A cumulative investment of US$ 180 billion (Rs. 12.5 trillion) in vehicle production and charging infrastructure would be required until 2030 to meet India’s EV ambitions.
Government Initiatives
The Government of India encourages foreign investment in the automobile sector and has allowed 100% FDI under the automatic route. Some of the recent initiatives taken by the Government of India are:
- Under Electric Mobility Promotion Scheme 2024 government aims to support 3,72,215 EVs including e-2W (3,33,387) and e-3W (38,828 including 13,590 rickshaws & e-carts and 25,238 e-3W in L5 category).
- Ministry of Heavy Industries, Government of India with the approval of Department of Expenditure has launched Electric Mobility Promotion Scheme 2024 to further accelerate the adoption of EVs in the country which is a fund limited scheme with a total outlay of Rs. 500 crore for the period of 4 months, from 1st April 2024 to 31st July 2024.
- In January 2024, the Ministry of Heavy Industries extended the tenure of the Production Linked Incentive (PLI) Scheme for Automobile and Auto Components by one year. The incentive will now be applicable for a total of five consecutive financial years, until March 31, 2028.
- Ministry of Heavy Industries (MHI) officials revealed that India plans to launch a new scheme to incentivise electric vehicle purchases and improve charging infrastructure, aligning with the interim budget's focus on eco-friendly transportation. Also, the allocation of US$ 321.5 million (Rs. 2,671.33 crore) for 2024-25 is expected to be utilized by March 31, 2024.
- Under phase-II of FAME India Scheme, subsidy amounting to US$ 696.8 million (Rs. 5790 crores) has been awarded to EV manufacturers on sale of 13,41,459 number of electric vehicles till January 31, 2024.
- The FAME Scheme was extended for a further period of 2 years up to 31st March, 2024
- In January 2023, under the FAME-II scheme, the Centre approves US$ 97.77 million (Rs. 800 crore) for 7,432 public fast charging stations.
- In July 2022, Gujarat government announced a semiconductor policy, where it will set up Dholera Semicon City and offered incentives for investment in this sector.
- In July 2022, the Government amended the National Policy on Biofuels – 2018. The target of 20% blending of ethanol in petrol and 5% blending of biodiesel in a diesel by 2030 was brought forward to 2025-26.
- As of July 15, 2022, under the FAME India Scheme I & II, a total of 532 EV charging stations have been installed by oil companies under the Ministry of Petroleum and Natural Gas (MoPNG).
- In February 2022, Mr. Nitin Gadkari, Minister of Road Transport and Highways, revealed plans to roll out Bharat NCAP, India’s own vehicle safety assessment program.
- In February 2022, 20 carmakers, including Tata Motors Ltd, Suzuki Motor Gujarat, Mahindra and Mahindra, Hyundai, and Kia India Pvt. Ltd was chosen to receive production-linked incentives (PLI) as part of the government's plan to increase local vehicle manufacturing and attract new investment. The 20 automobile companies have proposed a total investment of around US$ 5.95 billion (Rs. 45,000 crore).
- In the Union Budget 2022-23, the government laid out the following initiatives:
- The government introduced a battery-swapping policy, which will allow drained batteries to be swapped with charged ones at designated charging stations, thus making EVs more viable for potential customers.
- India’s National Highways would be expanded by 25,000 km in 2022-23 under the Prime Minister’s Gati Shakti Plan.
- In November 2021, the Union Government added >100 advanced technologies, including alternate fuel systems such as compressed natural gas (CNG), Bharat Stage VI compliant flex-fuel engines, electronic control units (ECU) for safety, advanced driver assist systems and e-quadricycles, under the PLI scheme for automobiles.
- In September 2021, Minister of Road Transport and Highways, Mr. Nitin Gadkari, announced that the government is planning to make it mandatory for car manufacturers to produce flex-fuel engines after getting the required permissions from the Supreme Court of India.
- In September 2021, the Indian government issued a notification regarding a PLI scheme for automobile and auto components worth US$ 3.49 billion (Rs. 25,938 crore). This scheme is expected to bring investments of over US$ 5.74 billion (Rs. 42,500) by 2026 and create 7.5 lakh jobs in India.
- In August 2021, Prime Minister Mr. Narendra Modi launched the Vehicle Scrappage Policy, which aims to phase out old polluting vehicles in an environmentally safe manner.
- The Indian government has planned US$ 3.5 billion in incentives over five years until 2026 under a revamped scheme to encourage the production and export of clean technology vehicles.
- In July 2021, India inaugurated the NATRAX, which is Asia’s longest high-speed track and the fifth largest in the world.
- As of June 2021, US$ 117 million (Rs. 871 crore) have been spent under the FAME-II scheme, 87,659 electric vehicles have been supported through incentives, and 6,265 electric buses have been sanctioned for various state/city transportation undertakings.
- In May 2021, the Central Government approved a PLI scheme for manufacturing Advanced Chemistry Cells (ACC) with a budget of US$ 2.33 billion (Rs. 18,100 crore). In March 2022, four firms, namely Reliance New Energy Solar Limited, Ola Electric Mobility Private Limited, Hyundai Global Motors Company Limited, and Rajesh Exports Limited, were elected to receive the incentives.
Road Ahead
The automobile industry is dependent on various factors such as the availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great investment opportunities and direct and indirect employment to skilled and unskilled labour. The electric vehicles industry is likely to create five crore jobs by 2030.
Addressing the automotive industry's needs, MHI has extended the tenure of the Production Linked Incentive (PLI) Scheme for Automobile and Auto Components by one year, offering incentives for determined sales over five consecutive financial years from 2023-24 to 2027-28, with disbursement occurring in the subsequent financial year. The scheme has proven successful, attracting proposed investments of US$ 8.1 billion (Rs. 67,690 crore) against the target estimate of US$ 5.1 billion (Rs. 42,500 crore) over five years, with US$ 1.6 billion (Rs. 13,037 crore) already invested by December 31, 2023.
As per Economic Survey 2023-24, the production linked incentive scheme (PLI) for automobile and auto components has so far attracted a proposed investment of Rs 67,690 crore (US$ 8.18 billion).
In August 2022, the Indian government launched India’s first double-decker electric bus in Mumbai. Looking long term, the government feels it is necessary to overhaul the country’s transportation system. It is working to create an integrated electric vehicle (EV) mobility ecosystem with a low carbon footprint and high passenger density with an emphasis on urban transportation reform. The government's strategy and policies are intended to promote greater adoption of electric vehicles in response to growing customer demand for cleaner transportation options.
The Government of India expects the automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023. India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
In CY 23, the Indian Automobile Sector recovered from the effects of the COVID-19 pandemic, posting single-digit growth across Passenger Vehicles, Commercial Vehicles, and Two Wheelers, along with a notable recovery in Three Wheelers, aided by supportive government schemes. The Indian auto industry anticipates continued growth in FY24 as well.
Notes: *Data except for BMW, Mercedes, JLR, Tata Motors & Volvo Auto. ** Data except for Daimler, JBM Auto & Scania.
References: International Organization of Motor Vehicle Manufacturers, Media Reports, Press Releases, Department for Promotion of Industry and Internal Trade (DPIIT), Automotive Component Manufacturers Association of India (ACMA), Society of Indian Automobile Manufacturers (SIAM), Union Budget 2023-24
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