Introduction
The Indian auto-components industry has experienced healthy growth over the last few years. The auto-components industry expanded by a CAGR of 6% over FY16 to FY20 to reach US$ 49.3 billion in FY20. The industry is expected to reach US$ 200 billion by FY26.
Auto-components industry account for 2.3% of India’s Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever-increasing development in infrastructure have made India a favourable destination for investment.
Market Size
The industry can be broadly classified into organised and unorganised sectors. The organised sector caters to original equipment manufacturers (OEMs) and consist of high-value precision instruments while the unorganised sector comprises low-valued products and caters mostly to the aftermarket category.
Automobile component industry’s revenue stood at US$ 49.3 billion in FY20, up from US$ 39.05 billion in FY16 and is expected to reach US$ 200 billion by FY26. Export of auto components grew at a CAGR of 7.6% to reach Rs. 102,623 crore (US$ 14.5 billion) during the same time. As per Automobile Component Manufacturers Association (ACMA), automobile components export from India is expected to reach US$ 80 billion by 2026. The Indian auto components industry is expected to reach US$ 200 billion in revenue by 2026.
Investments
The Foreign Direct Investment (FDI) inflow into Indian automotive* industry during the period April 2000-December 2020 stood at US$ 25.39 billion as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).
Some of the recent investments made/planned in the Indian auto components sector is as follows:
- In March 2021, the government announced to offer fresh incentives to companies making electric vehicles (EVs) as part of a broad auto sector scheme. The scheme is expected to attract US$ 14 billion of investment in the next five years.
- In February 2021, Vedanta Resources launched its newest product—aluminium cylinder head alloy, a crucial raw material for manufacturing cylinder heads and other automotive components.
- A cumulative investment of ~Rs. 12.5 trillion (US$ 180 billion) in vehicle production and charging infrastructure would be required until 2030 to meet India’s electric vehicle (EV) ambitions. This is likely to boost the demand of auto components from local manufacturers.
- In January 2021, Suzuki Motor Corp. and Hyundai Motor Co. announced plans to explore ways to make India a key global hub for sourcing components and facilitate sharp rise in vehicle exports from the country.
- In January 2021, French battery system supplier Forsee Power committed to invest Rs. 82 crore (US$ 11.18 million) in phase 1 of the India project.
- 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 as well as providing auto loans for the purchase of Japanese automobiles in India.
- In October 2020, the government of Tamil Nadu signed 14 memorandum of understandings (MoU) worth Rs. 10,055 crore (US$ 1.4 billion) that will generate 69,712 jobs in the state.
- In September 2020, off-highway tyre-maker Alliance Tire Group (ATG), owned by the Japanese major Yokohama Group, announced plans to set up its third plant in the country in Visakhapatnam, with an investment of US$ 165 million (Rs. 1,240 crore). The proposed plant will add over 20,000 tonnes per annum (55 tonnes per day rubber weight) capacity to the 2.3-lakh-tonne annual production from two India plants and will be commissioned by the first quarter of 2023.
- In September 2020, Toyota Kirloskar Motors announced investments of Rs. 2,000+ (US$ 272.81 million) aimed towards electric components and technology.
- In February 2020, National Engineering Industries Ltd (NEIL) announced investment of Rs. 100 crore (US$ 14.31 million) over the next three years for producing needle roller bearing at its Jaipur facility.
- In January 2020, Tata AutoComp Systems entered a joint venture (JV) with Beijing-based Prestolite Electric to enter the electric vehicle (EV) components market.
- In October 2019, Minda Industries acquired Germany-based automotive lamps firm Delvis Gmbh along with two of its subsidiaries for Rs. 164 crore (US$ 23.47 million).
- In August 2019, Eaton partnered with Pune-headquartered technology firm KPIT.
- In April 2019, Durr, a German automotive painting and sealing company, entered a partnership with Patvin to provide automated painting solutions for two or three wheelers and agricultural machinery for the Indian markets.
- As of January 2019, Lite Auto Components Pvt Ltd, a part of Hindustan Magnesium Products Pvt Ltd, planned to invest Rs. 500 crore (US$ 69.30 million) to set up Magnesium-based manufacturing plant in Andhra Pradesh.
Achievements
Following are Government’s achievements in the past four years:
- Production of two wheelers, passenger vehicles, commercial vehicles and three wheelers reached 21.03 million, 3.43 million, 0.75 million, and 1.13 million, respectively, in FY20.
- FAME – India Scheme formulated by Department of Heavy Industry, led to a continuous increase in registered OEMs and vehicle models. Also, the scheme enhanced the sales of EVs and about 261,507 electric/hybrid vehicles were supported under the scheme up to December 6, 2018. In February 2019, the Government approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.
- Under National Automotive Testing and research and development (R&D) Infrastructure Project (NATRiP), various facilities including passive safety labs comprising of crash core facility and crash instrumentations including dummies were established at ICAT-Manesar and ARAI-Pune.
- To give a fresh thrust to E-mobility in public transport, Department of Heavy Industry announced the launch of public and shared mobility based on electric powertrain.
Government Initiatives
The Government of India’s Automotive Mission Plan (AMP) 2006-2016 has come a long way in ensuring growth for the sector. Indian Automobile industry is expected to achieve a turnover of US$ 300 billion by 2026 and will grow at a CAGR of 15% from its current revenue of US$ 74 billion.
In November 2020, the Union Cabinet approved PLI scheme in automobile and auto components with an approved financial outlay over a five-year period of Rs. 57,042 crore (US$ 8.1 billion)
Government has come out with Automotive Mission Plan (AMP) 2016-26 which will help the automotive industry to grow and will benefit Indian economy in the following ways: –
- Contribution of auto industry in the country’s GDP will rise to over 12%.
- Around 65 million incremental number of direct and indirect jobs will be created.
- End of life Policy will be implemented for old vehicles.
Road Ahead
The rapidly globalising world is opening newer opportunities for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe, and reliable mode of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt change via systematic R&D.
As per ACMA forecasts, automobile component export from India is expected to reach US$ 80 billion by 2026. With shift in global supply chains, the Indian global automotive component trade is likely to expand at ~4-5% by 2026.
In December 2020, Power PSU JV EESL announced plan to install ~500 electric vehicle (EV) charging stations in the country in fiscal 2020-21.
The Indian auto-components industry is set to become the third largest in the world by 2025. Indian auto-component makers are well positioned to benefit from the globalisation of the sector as export potential could be increased by up to US$ 30 billion by 2021E.
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)
Note: Conversion rate used in February 2020, Rs. 1 = US$ 0.01357
Note: * – Includes automobile and auto-components, E – Estimated, SAMARTH – Smart & Advanced Manufacturing and Rapid Transformation Hub