India has become one of Asia’s largest auto hubs and is forecast to become a key player in global auto supply chains. The country’s auto industry is currently dominated by foreign players, but local companies are growing rapidly and their market share is expected to increase rapidly over coming years. In 2016, India produced almost 18 million vehicles, up from fewer than two million two decades ago. By 2020, total production is expected to reach 21 million units.
The Indian auto components industry has shown impressive growth in the past decade, both in terms of production and exports. With the recent progress of an Indian auto industry and government policies, the future prospects of this industry are also promising. The Indian auto components market is currently valued at USD 5 billion with an estimated growth rate of 20% by 2020. Major players in this market include Ashok Leyland, Mahindra & Mahindra, Honda Motorcycle & Scooter India Pvt Ltd., Mahavir Auto Industries Ltd., IVECO India Pvt Ltd., Bharat Forge Limited and JBM Auto Components.
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The Indian Auto Components Industry
India’s automobile industry ranks third in terms of production capacity, having surpassed Japan as well as Russia. After a decline in vehicle sales, mainly due to slow sales of commercial vehicles and trucks, last year showed an increase in vehicle production by both passenger car and commercial truck manufacturers. 2015-16 and moderate growth forecasts for 2016-17, auto component exports show promising signs. The government has been trying to encourage domestic manufacturing through various policies and incentives, which have helped boost local demand for components. This has led to several companies increasing their focus on local production facilities and sourcing components from within India rather than importing them from abroad. The government is also making efforts to reduce logistics costs through various policy initiatives such as roll-on/roll-off (RoRo) services at ports that will help reduce overall transportation costs.
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Growth of Auto Components Industry
The auto components industry in India grew at a CAGR of 12.8% from fiscal years 2004-05 to 2011-12. At Rs 36,170 crore in FY 2012-13, it accounted for nearly 25% of total export earnings by organized sector units under ‘Automobiles & Motor Vehicles’ category (Rs 1,22,970 crore) during 2011-12. It is also one of the largest employment generators in India. As per estimates by Automotive Component Manufacturers Association (ACMA), there are more than 200 companies involved in manufacturing auto components with an annual turnover exceeding Rs 40,000 crore. In addition, several others are involved in assembling automobile parts like engine blocks, cylinder heads and gear boxes which have been imported as completely built up units or CBUs/CKDs for assembly here. During 2006-2010, two wheeler production increased by around 20% p. a., thereby increasing spare parts demand as well. Moreover, increasing penetration of auto components into passenger cars also has been an important factor for growth of auto components industry in India during recent years.
Best Value Investors in Auto Components
There are over 20,000 auto parts companies in India. The top ten companies account for only 6% of total market share. This means that there is a huge opportunity to invest in small companies that are less known but will likely grow. The best part is, these investments are not risky due to economies of scale and strict regulations in India. Most importantly, these smaller companies have low debt as compared to their larger competitors—creating a safer investment environment.
Growth of Electric Vehicles
In 2015, over half a million hybrid and electric vehicles were sold worldwide. That’s up 30% from 2014. That’s because more and more people are looking for eco-friendly alternatives to gas-powered cars, especially in China and India. As more and more countries start to take steps towards banning gasoline-powered cars altogether, demand for electric vehicles will continue to rise. In 2017, 7.5 lakh electric vehicles were sold in India. This was ten times higher than 2016 and four times higher than 2015. Till 2020, more than 8-10 million electric vehicles are expected to be sold in India. The government aims to have all vehicles run on electricity by 2030. Apart from public transport like buses and autos, states like Maharashtra want to go fully electric by 2025 and Uttar Pradesh by 2035.
Business opportunity in Auto Components Industry
Recently, India has taken steps to improve its infrastructure, develop port facilities, and focus on developing manufacturing. Its infrastructure plan is expected to cost about $1 trillion in order to build. Due to these developments, many foreign companies have increased their investments in India’s auto industry; they have discovered that it offers a competitive environment for their business plans while still being able to take advantage of India’s labor force. In addition, as one of the world’s fastest growing economies, there are huge opportunities for growth within India’s auto components industry. For example, Ford Motor Company recently opened an assembly plant near Chennai (formerly known as Madras) where it will produce both cars and engines. In addition to attracting foreign investment from large companies like Ford Motor Company, smaller firms also have an opportunity to do business in India’s automotive sector due to low production costs and relatively high profit margins. India is one of the world’s largest producers of automobile components, according to data compiled by Economics & Statistics Online. In 2011, India produced $15.7 billion worth of auto parts, good for 12 percent of global production.
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Leading Global Automotive Manufacturing Hub
India’s auto industry has rapidly grown into a leading global manufacturing hub, with consistent year-on-year growth. India is home to over a dozen key automotive original equipment manufacturers (OEMs) and ancillary manufacturers including Aditya Birla, Apollo Tyres, Hero MotoCorp, Mahindra & Mahindra, Maruti Suzuki and others. The country also boasts of being one of Asia’s largest hubs for aftermarket parts production.
India’s automotive sector accounts for 7% of its GDP, making it one of its most important industries. The industry employs more than 3 million people directly and another 5 million indirectly. In addition to direct employment, these companies spend about $12 billion on research and development every year – contributing significantly to the R&D economy in India overall.
The expanding involvement of multinational car Original Equipment Manufacturers (OEMs) in the Indian auto components business has resulted in a considerable increase in component localisation.
FDI into the Indian automotive industry totaled $25.85 billion from April 2000 to March 2021.
Under the automated approach, 100 percent FDI in the automobile components business is permitted.
For further details, please refer FDI Policy
- By 2026, India’s fast expanding vehicle market is estimated to exceed $ 300 billion.
- By 2026, India’s automotive aftermarket is anticipated to be worth $ 32 billion.
- Exports of auto components are expected to increase fivefold in the next ten years.
Download PDF: Auto Components Industry in India: Sector Overview and Business Opportunities
Industry Scenario
- India’s $46 billion (FY21) auto component sector is estimated to reach $200 billion by 2026.
- Exports of Indian auto components, which are currently valued at $13.3 billion in FY21, are predicted to reach $80 billion by 2026. The top export destinations are the United States, Germany, the United Kingdom, Thailand, and Italy.
- The aftermarket segment, which includes tyres, batteries, and brake parts, is predicted to grow from $9.8 billion in FY20 to $32 billion by 2026.
Growth Drivers
- Expanding R&D hub the automotive industry accounts for 8% of the country’s R&D spending.
- Emerging global sourcing hub Markets such as ASEAN, Europe, Japan, and Korea are all close by.
- Cost Competitive Vehicle excise duty reductions will boost demand.
- Fifth Largest Vehicles Manufacturer in the World By 2026, India is predicted to be the third largest market.
- Favorable Trade Policy Import-export restrictions are not imposed and 100% FDI is allowed.
- Atmanirbhar Bharat under Atmanirbhar Bharat 3.0, PLI initiatives in the automobile and auto component sectors were implemented with a financial outlay of INR 25,938 crores.
Production Linked Incentive (PLI) Scheme
- The Production-Linked Incentive (PLI) Scheme in the Automobile and Auto Components sectors was launched by the Union Cabinet, which is chaired by Prime Minister Shri Narendra Modi.
- The programme provides financial incentives to encourage domestic manufacturing of Advanced Automotive Technology products and investments in the automotive manufacturing value chain.
- The deadline for bidding for this project was January 9, 2022.
Industry Trends
Transitioning Towards Electric Vehicles
The Indian government has taken a number of initiatives in recent years to establish the suitable policy climate for the promotion of electric vehicles.
Voluntary Vehicle Fleet Modernization Programme (V-VMP)
Providing incentives to new commercial vehicle purchasers
Bharat Stage VI norms by 2020
By 2030, India wants to cut its carbon footprint by 33-35 percent.
Positive GST Impact
India’s auto industry’s total cost structure is being reduced.
Some Useful Links:
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Industry Associations
- Automotive Component Manufacturers Association (ACMA)
- Automotive Research Association of India (ARAI)
- Society of Indian Automobile Manufacturers (SIAM)
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