Automotive Industry: Automotive Components Sector in India – 2021 (Growth Analysis)

Automotive Components Sector in India accounts for almost 2.3% of the nation’s GDP. Over the last couple of years, the auto-component industry in India has experienced steady growth, and as per industry reports, it has expanded by a CAGR of 6% between FY 2016 and FY 2020.

Various data on recent market trends also estimates that due to the high prospect of development across diverse auto sectors and changing consumer demands, the auto-component industry is expected to grow by double digits in 2022. In fact, according to reports, the auto-component industry is estimated to reach a valuation of USD 200 billion by FY 2026.

Such a steady growth trajectory in the Indian auto-component industry and projected growth is creating promising investment opportunities for foreign businesses. In fact, India is emerging as a global hub for sourcing auto components globally, with exports expected to reach a valuation of USD 80 billion by 2026.

Consequently, the auto-component industry is becoming immensely competitive. Foreign investors are, thus, relying on a leading automotive consulting company to help frame adequate India-entry strategies.

Growing Demand and Recent Trends in Automotive Components Sector in India

Over the last few years, there has been a considerable shift in the automobile market dynamics that are constantly shaping the profitable growth opportunities in the auto-component sector. The growing working-class population in India and the middle-income group are the key drivers of this segment, un-folding huge potential for growth.

Furthermore, the “Make in India” drive is also improving localisation levels for most major domestic and foreign OEMs across different vehicle segments. It is also establishing the capability of the industry to produce a diverse portfolio of auto components.

Automotive industry consultants in India are also helping foreign investors to identify these areas and take up profitable investment plans.

In fact, some of the top-selling vehicles across various segments like SUVs, hatchbacks, premium sedans, commercial vehicles, and more have already achieved about 85% of the localisation in auto-component production.

In terms of OEM exports, too, the auto-component industry in India is tracing remarkable growth. In fact, as per Automobile Component Manufacturing Association (ACMA), India’s auto-component exports are estimated to grow at a tremendous rate in the coming years.

Also, automotive consulting services in India are helping foreign investors leverage promising opportunities in the auto-component sector in India with thorough analysis and comprehensive implementation, and M&A support.

Investors are, therefore, now able to enter the Indian market with adequate insights and comprehensive India-specific market entry strategies. This approach offers them a competitive advantage in both organised and unorganised auto-component sectors.

Changing OEM Needs 

•  Evolving Adjacent Industrial Sectors

In India, several adjacent industries like aerospace, agricultural machinery, defence, etc., are evolving rapidly, creating a promising and potential market for auto-component manufacturers.

Moreover, in all these sectors, the government is ramping up the ‘Make in India’ drive to cut down on imports, which will prompt the need for localised productions of auto components for a diversified portfolio.

• Changing Domains of Growth

Auto-component manufacturers are also currently required to keep pace with the rapidly changing OEM needs. They must also meet the dynamic demands of the end-users to reduce alteration in automobile cost composition.

Further, manufacturers also need to align their production with the diversifying pockets of growth. While the traditional vehicle segments will continue to grow at a steady pace, the gradual demand for premium vehicles following the rise of disposable income is creating attractive opportunities for foreign auto-component manufacturers.

Further, with strategic help from a leading automotive consulting company, foreign investors can better understand the shifting consumer preference and market demand to ensure sustainable growth.

• Rise of EV Segment

EV market in India is rising at a considerable pace. In fact, various market reports suggest that by 2025, about 4 million EVs could be sold each year. However, the penetration of electronics in the auto industry is challenged by the limited localised production of auto components and enormous dependency on imports.

But, with rapid measures to curb environmental pollution, the Indian government is taking up policies to increase the sale of EVs in the country.

Consequently, the Indian EV component market for passenger cars and bikes like battery packs, thermal management systems, controllers, high-voltage cables, power distribution modules, control modules, etc., is expected to witness steady growth.

Foreign firms can, therefore, formulate an adequate market-entry strategy with assistance from reliable automotive consulting services.

• Rationalising Tier 1 and Tier 2 Auto-Components

There is a growing rationalisation in the Tier-1 and Tier-2 auto-component supply chain in India. The Tier-1 supply chain consists of the most technically capable companies producing integrated systems like dashboard assembly, suspension, braking system, etc. They are being encouraged by the Indian government with favourable policies to develop their manufacturing capabilities of more complex OEM modules.

Consequently, the Tier-2 auto-component supply chain will be benefited by capitalising on the growth prospect of Tier-1 companies. This will allow them to keep pace with the overall global development, improving cost competitiveness and customer orientation.

Further, with active support from leading automotive industry consultants, investors in both Tier-1 and Tier-2 auto-component segments can gain a competitive edge.

Government Initiatives 

In order to support the growth of the auto-component industry in India, the Government has also introduced several lucrative policies, like:

• Foreign Direct Investments- 

  The Government of India allows 100% FDI under the automatic route. With comprehensive assistance from the best automotive consulting services in India, foreign investors can, thus, undertake a strategic and planned investment in this expanding sector for profitable returns.

• PLI Policy

  Indian government has also approved the PLI scheme in both automobile and auto-component industries with an approved financial outlay of USD 1 billion in 2020 for a period of over 5 years.

Establishing the Need for Automotive Consulting Services in India

In order to enter the competitive sector of the Automotive Components Sector in India, foreign investors need a detailed market analysis, strategic planning and must also fulfil certain regulatory compliances.

Hence, foreign investors need to collaborate with a leading automotive consulting company, like Tecnova, to adequately fulfil all the requirements and make the process safe and hassle-free.

With a range of automotive consulting services and implementation support like setting up greenfield projects, M&A activities and solutions, partner search, incubation, and business development program, expansion and growth advisory, company incorporation, etc., Tecnova ensures foreign investors can enter the Indian market without any investment risk.

The recent trends and shifting domestic demands are creating favorable investment opportunities in the Indian auto-component sector. Coupled with excellent government policies, foreign investors now stand a considerable chance to secure sustainable growth by investing in the India auto-component and OEM industry.

However, the evolving auto-component market and increased chance of profitability are also marred by intense competition. Hence, foreign investors must duly collaborate with reliable automotive consulting services to secure better ROI.

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