International Joint Ventures and Merger & Acquisitions

Auto Components Industry in India

Tue, 22 August 2023

The Indian auto component industry is a crucial driver of economic growth and job creation, contributing 2.3% to the GDP and employing 1.5 million people. By 2026, it is expected to contribute 5-7% to the GDP.
The industry is a leader in exports, employing over 3.7 crore people and showing impressive growth, reaching US$ 56.50 billion in FY22 with a projected value of US$ 200 billion by FY26. It mainly serves two segments: OEM, accounting for 85% market share, and the Replacement market with 15% share.
 

Market Study

The Indian auto components industry has been witnessing remarkable growth, with its value increasing from $46 billion in FY21 to an estimated $200 billion by 2026. The sector's exports are also projected to surge, reaching $80 billion by 2026. In FY21, the industry achieved a trade surplus of $700 million. Currently contributing 2.3% to India's GDP, it is expected to become the world's third-largest auto components industry by 2025. The two-wheeler segment, fuelled by the Indian middle class's purchasing power, dominated the automobile industry, which recorded a total sales volume of 17.51 million units in FY22. This significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers, enhancing India's expertise and driving international demand for Indian products.
 

Recent Industry Trends

The Indian government has taken significant steps to encourage the transition to electric vehicles (EVs). Initiatives like the Voluntary Vehicle Fleet Modernization Programme (V-VMP) incentivize buyers of new commercial vehicles to opt for environmentally friendly options, including EVs. The implementation of Bharat Stage VI (BS-VI) norms by 2020 aims to reduce carbon emissions, promoting cleaner vehicles, including electric ones. Additionally, the positive impact of GST has made electric vehicles more competitive and accessible to consumers, further driving their adoption.
 

Growth Drivers of the Industry

India has emerged as a growing R&D hub, dedicating 8% of its total R&D expenditure to the automotive sector, driving innovation and technological advancements. Its strategic location near key markets like ASEAN, Europe, Japan, and Korea positions it as an emerging global sourcing hub for automotive products. Cost competitiveness has been improved by reducing excise duty, stimulating demand for vehicles. As the fifth-largest vehicle manufacturer globally, India holds a prominent position in the automotive industry. It is projected to become the third-largest automotive market by 2026. With favourable trade policies, including 100% FDI and unrestricted import-export, India's automotive industry continues to thrive. The Atmanirbhar Bharat 3.0 initiative introduced Production-Linked Incentive (PLI) schemes with INR 25,938 Crores support to boost domestic manufacturing and self-reliance in the automobile and auto component sectors.
 

Why Invest in India?

 

Automotive Manufacturing Hubs Established in India

The car brand clusters in India are strategically located across different states to leverage various advantages. Chennai, Tamil Nadu, stands out as a significant automotive hub with Hyundai, Ford, Renault-Nissan, and Daimler attracted by its central location, skilled workforce, and supportive policies. Pune, Maharashtra, hosts Tata Motors, Mahindra & Mahindra, and Volkswagen-Skoda due to its automotive expertise and excellent connectivity. Gurugram and Faridabad, Haryana, house Maruti Suzuki for their proximity to the capital and skilled manpower. Sanand, Gujarat, appeals to Tata Motors and MG Motor for its investor-friendly policies and robust infrastructure. Sriperumbudur, Tamil Nadu, attracts BMW with its favorable investment climate. Tapukara, Rajasthan, is chosen by Honda Cars India for its supportive business environment. Andhra Pradesh is home to Kia Motors, and Uttar Pradesh houses Yamaha, while Karnataka hosts Toyota Kirloskar Motors, each drawn by various advantages like a conducive business environment and skilled labour. Maharashtra's Talegaon once hosted General Motors, and Chakan in Rajasthan is another location for Mahindra & Mahindra. The diversity of these clusters showcases India's growing prominence in the global automotive industry.
 

Regulatory Framework

 

Incentives and Support

 

Raw Materials

Manufacturing auto components requires a wide range of raw materials, each catering to specific components' requirements. India is home to a diverse and well-established industrial base, making it also a favourable destination for sourcing the raw materials required for manufacturing auto components. Some include:

 

Project Estimations

The cost of setting up an auto component manufacturing plant in India can vary widely depending on several factors, including the scale of the plant, the types of components to be manufactured, the location of the plant, technology used, and infrastructure requirements. The estimated cost breakdown for setting up a medium-sized auto component manufacturing plant in India includes land and infrastructure (20-30%), machinery and equipment (40-50%), raw materials (15-25%), labor and manpower (5-10%), technology and R&D (5-10%), regulatory and compliance (3-5%), marketing and sales (2-5%), working capital (5-10%), and a contingency fund (5%). These factors can vary depending on the scale, location, and type of components to be manufactured.
 

Pathways to Expand

 

How can we help?

Indian Auto Components Industry Report

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19 Pages | August 2023



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