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India's electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion) opportunity by 2025, with two- and three-wheelers expected to drive higher electrification of the vehicles.

Automobile Industry in India

    Last updated on Mar, 22 2021

Indian Automobile Industry Report  (Size: 756.81 KB ) (January, 2021)

Introduction

India became the fourth largest auto market in 2019 displacing Germany with about 3.99 million units sold in the passenger and commercial vehicles categories. India is expected to displace Japan as the third largest auto market by 2021.

The two wheeler segment dominates the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector.

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 and major automobile players in the Indian market are expected to make India a leader in the two-wheeler and four-wheeler market in the world by 2020.

Market Size

Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20.

Passenger vehicle (PV) sales stood at 3,10,294 units in October 2020, compared with 2,71,737 units in October 2019, registering a 14.19% growth. As per the Federation of Automobile Dealers Associations (FADA), PV sales in November 2020 stood at 2,91,001 units, compared with 2,79,365 units in November 2019, registering a 4.17% growth.

Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94% during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed by passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.

EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two wheelers.

Premium motorbike sales in India recorded seven-fold jump in domestic sales, reaching 13,982 units during April-September 2019. The sale of luxury cars stood between 15,000 to 17,000 in the first six months of 2019.

Investments

In order 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 industry has attracted Foreign Direct Investment (FDI) worth US$ 24.53 billion between April 2000 and June 2020, according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the recent/planned investments and developments in the automobile sector in India are as follows:

  • In November 2020, Mercedes Benz partnered with the State Bank of India to provide attractive interest rates, while expanding customer base by reaching out to potential HNI customers of the bank.
  • Hyundai Motor India invested ~Rs. 3,500 crore (US$ 500 million) in FY20, with an eye to gain the market share. This investment is a part of Rs. 7,000 crore (US$ 993 million) commitment made by the company to the Tamil Nadu government in 2019.
  • In October 2020, Kinetic Green, an electric vehicles manufacturer, announced plan to set up a manufacturing facility for electric golf carts besides a battery swapping unit in Andhra Pradesh. The two projects involving setting up a manufacturing facility for electric golf carts and a battery swapping unit will entail an investment of Rs. 1,750 crore (US$ 236.27 million).
  • In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide US$ 1 billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the manufacturing and sales business of suppliers and dealers of Japanese automobile manufacturers and providing auto loans for the purchase of Japanese automobiles in India.
  • In October 2020, MG Motors announced its interest in investing Rs. 1,000 crore (US$ 135.3 million) to launch new models and expand operations in spite of the anti-China sentiments.
  • In October 2020, Ultraviolette Automotive, a manufacturer of electric motorcycle in India, raised a disclosed amount in a series B investment from GoFrugal Technologies, a software company.    
  • In September 2020, Toyota Kirloskar Motors announced investments of more than Rs 2,000 crore (US$ 272.81 million) in India directed towards electric components and technology for domestic customers and exports.
  • During early September 2020, Mahindra & Mahindra singed a MoU with Israel-based REE Automotive to collaborate and develop commercial electric vehicles.
  • In April 2020, TVS Motor Company bought UK’s iconic sporting motorcycle brand, Norton, for a sum of about Rs. 153 crore (US$ 21.89 million), making its entry into the top end (above 850cc) segment of the superbike market.
  • In March 2020, Lithium Urban Technologies partnered with renewable energy solutions provider, Fourth Partner Energy, to build charging infrastructure across the country.
  • In January 2020, Tata AutoComp Systems, the auto-components arm of Tata Group entered a joint venture with Beijing-based Prestolite Electric to enter the electric vehicle (EV) components market.
  • In December 2019, Force Motors planned to invest Rs. 600 crore (US$ 85.85 million) to develop two new models over the next two years.
  • In December 2019, Morris Garages (MG), a British automobile brand, announced plans to invest an additional Rs. 3,000 crore (US$ 429.25 million) in India.
  • Audi India planned to launch nine all-new models including Sedans and SUVs along with futuristic E-tron EV by end of 2019.
  • MG Motor India planned to launch MG ZS EV electric SUV in early 2020 and have plans to launch affordable EV in the next 3-4 years.
  • BYD-Olectra, Tata Motors and Ashok Leyland will supply 5,500 electric buses for different state departments.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and has allowed 100% foreign direct investment (FDI) under the automatic route.

Some of the recent initiatives taken by the Government of India are -

  • Under Union Budget 2019-20, the Government announced to provide additional income tax deduction of Rs. 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.
  • The Government aims to develop India as a global manufacturing centre and a Research and Development (R&D) hub.
  • Under NATRiP, the Government of India is planning to set up R&D centres at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.
  • The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of EVs in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The Government will also set up incubation centre for start-ups working in the EVs space.
  • In February 2019, the Government of India approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.

Achievements

Following are the achievements of the Government in the last four years:

  • In H12019, automobile manufacturers invested US$ 501 million in India’s auto-tech start-ups according to Venture intelligence.
  • Investment flow into EV start-ups in 2019 (till end of November) increased nearly 170% to reach US$ 397 million.
  • On 29th July 2019, Inter-ministerial panel sanctioned 5,645 electric buses for 65 cities.
  • NATRiP’s proposal for “Grant-In-Aid for test facility infrastructure for EV performance Certification from NATRIP Implementation Society” under the FAME Scheme was approved by Project Implementation and Sanctioning Committee (PISC) on 3rd January 2019.
  • Under NATRiP, following testing and research centres have been established in the country since 2015.
    • International Centre for Automotive Technology (ICAT), Manesar.
    • National Institute for Automotive Inspection, Maintenance & Training (NIAIMT), Silchar.
    • National Automotive Testing Tracks (NATRAX), Indore.
    • Automotive Research Association of India (ARAI), Pune.
    • Global Automotive Research Centre (GARC), Chennai.
  • SAMARTH Udyog - Industry 4.0 centres: ‘Demo cum experience’ centres are being set up in the country for promoting smart and advanced manufacturing helping SMEs to implement Industry 4.0 (automation and data exchange in manufacturing technology).

Road Ahead

The automobile industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.

 

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 2015-16, Union Budget 2019-20

Note: Conversion rate used in December 2020, Rs. 1 = US$ 0.01357

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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