Indian automobile industry is the significant contributor the country’s GDP and it is the third largest automobile market by value and volume both, in the world. Compared to the world, India is the largest manufacturer of tractor, second largest in bus and third largest in heavy truck manufacturing. Indian automobile industry is valued at $ 611 billion in 2024 and is expected to reach valuation of ~ $ 1.193 trillion by 2035, showing a CAGR of 6.27%.

The automobile industry has a strong positive correlation with auto component industry and hence growing Indian automobile industry is one of the important key growth drivers of the auto component manufacturers. India has positioned itself among the top 7 auto component suppliers in the globe, helped by its cost effectiveness and skilled workforce. In FY24, the auto component industry has accounted for 2.3% of the total India’s GDP & ~25% of India’s total manufacturing GDP and also employed more than 1.5 million people in the same fiscal year. It is expected that by 2026, the Indian auto component industry will be contributing about 5-7% of total India’s GDP and will provide employment to about 4-5 million people under the Automotive Mission Plan (2016-26). The auto component industry is divided into organised and unorganised segment where unorganised segment serves the aftermarket with low value products and organised segment serves to OEMs with high value products.

Key Growth Drivers

• Domestic Manufacturing: The Indian automotive industry is supported stengthned by various Govt. policies and domestic manufacturing of auto components is one of them. Reducing imports, strengthening supply chain, creating domestic value is the primary goal of “Make in India”. In order to control prices, reduce transportation & supply chain risks and align themselves to the requirement of local automakers’ standards, the auto components are investing in cutting-edge technologies which results increasing demand for domestic sourcing of auto components. Some of the auto components industry players are increasing their capabilities to cater the increasing demand from automotive industry.
• EV Push: Gradual shifts towards EV reshaping the Indian automotive industry as well as auto component industry. Internal Combustion Engine (ICE) is still dominating the market but new component required for EVs is creating new catergory for auto components manufacturers such as battery packs, thermal management systems, power electronics and electric drivetrains. This transformation expands the market size rather than replace the existing market requirements and most important, auto makers are preferring domestic supply to control price and reduce the supply chain risks.
• Growing Middle Class: Growing middle class population is one of the key drivers of auto component industry which directly creates the demand for OEM and aftermarket sales. In non metropolitan areas, a 15% increase has been noticed of first time vehicle purchases and therefore increase in demand for replacement market.

Risks

• Raw Material Price Risk: For most of the auto component producers, the primary raw materials are steel, aluminium, copper and alloys whose prices are very volatile in nature. The prices of such raw materials are depend on factors like availability, fluctuations in domestic and international demand and supply, international production and capacity, transportation costs, protective trade measures and various social and political factors, which creates pressures on margins.
• Supply Chain Risk: Indian auto component manufacturers depends on imports for electronics, semiconductors and specialty materials. Because of this, the lead (delivery) time has become long when anything major event hit the global economy such as global disruptions, shipping delays and geopolitical tensions. These problems creates challenges for just-in-time manufacturing and increase the inventory holding costs and causes production timeline disruptions, customer dissatisfaction and working capital inefficiency. Indian depends on China for rare earth materials – over 80% rare earth materials are imported from China, but restrictions on export from China’s side, put the industry in supply chain risk.