Auto and Auto Components manufacturing. The road ahead is green

12 May 2023

The Automobile and Auto-Component Industry has become an important sector for the nation’s economic growth and development. It contributes over Seven per cent to the country’s GDP and accounts for almost forty-nine per cent of the total manufacturing output. The segment is expected to grow at a CAGR of 10.4% from 2020–2025. Growing at this rate the industry would reach a size of US $300 billion by 2026. 

The industry employs more than 37 million people, both directly and indirectly, and is one of the largest employers in the country. Further, it plays a significant role in the technological progress and the development of the Indian economy. It is also a prominent source of foreign exchange earnings, with exports of vehicles and auto components accounting for around eight per cent of India’s total exports. By 2030, Automobile and Auto-Component Industry in India is set to become the third largest market globally and have a significant role in the nation’s overall economic growth and development.

Growth Projections 

The Indian automobile industry is projected to witness significant growth in the coming years. According to various reports and market research, the industry is expected to continue its growth trajectory, driven by factors such as rising disposable incomes, increasing urbanization, and government policies promoting sustainable mobility.

Electric Vehicle (EV) Market: The EV market in India is expected to grow at a CAGR of around 44% between 2021 and 2025, driven by government incentives and subsidies, increasing awareness about sustainability, and decreasing battery costs.
Passenger Vehicle Market: India Passenger Car Market is Poised to Grow CAGR of 1.17% by 2028, driven by increasing demand for SUVs and crossover vehicles, rising disposable incomes, and the launch of new models by automakers.
Commercial Vehicle Market: The commercial vehicle market is expected to grow at a CAGR of around 10% between 2021 and 2025, driven by factors such as government infrastructure development initiatives, rising e-commerce activities, and the implementation of the new axle load norms.
Two-Wheeler Market: The India two wheeler vehicle market was estimated at around USD16,007.84 million in 2022 and is estimated to reach USD 26,638.49 million in 2028, registering a CAGR of 9.88%,driven by factors such as increasing demand for scooters, rising female participation in the workforce, and EVs fast becoming a go to choice for consumers.

Developments in the Auto & Component Sector 

The Government of India approved Production Linked Incentive (PLI) Scheme for the Automotive and Auto Component Industry in September 2021, to enhance manufacturing capabilities and global competitiveness in the Automobile and Auto Component sectors. 

The incentive structure is designed to address the cost disadvantages faced by the industry when manufacturing Advanced Automotive Technology products in India. The PLI Scheme applies to both existing Automotive companies and new Non-Automotive investor companies (those not currently in the automobile or auto component manufacturing business). It comprises two components: the Champion OEM Incentive Scheme and the Component Champion Incentive Scheme. 

On February 11, 2022, the Indian government approved 20 companies as Production Linked Incentive (PLI) beneficiaries under the Champion OEM Incentive Scheme. This was followed by the approval of 75 companies under the Component Champion Incentive Scheme on April 1, 2022. The combined investments proposed by the approved companies totalled INR 450.16 billion (US$5.88 billion) under the Champion OEM Incentive Scheme and INR 298.34 billion (US$3.90 billion) under the Component Champion Incentive Scheme.

Impact of Technology and Innovation

The introduction of electric vehicles has been particularly beneficial for the industry because it has drastically reduced the cost of production. This has enabled the industry to reduce its overall production costs. Further, the arrival of Hydrogen vehicles has increased the need for innovation, and organisations will be keen to utilise the funding from the PLI scheme to improve their R&D to develop indigenous technologies. 

The impact of technology and innovation in the future of the Indian automobile sector is expected to be transformative. With the continued adoption and advancement of technologies such as electric vehicles, connected cars, and autonomous driving systems, the industry is likely to witness further improvements in areas such as safety, energy efficiency, and user experience. 

The integration of data analytics and artificial intelligence is also expected to enable greater automation, cost efficiency, and customization in the manufacturing, supply chain, and service delivery processes. Additionally, emerging technologies such as 5G networks and blockchain are likely to create new opportunities for the industry to enhance connectivity, security, and transparency. 

However, the impact of technology and innovation is not without challenges, such as the need to address cybersecurity risks, data privacy concerns, and the potential for job displacement. Overall, it is important for the industry to proactively manage these challenges while leveraging the full potential of technology and innovation to create a more sustainable and competitive automobile sector in India

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