India's AutoComp Inc set to triple in size to USD 200 billion

The thriving Indian automotive components industry, which is currently pegged at USD 74 billion after having registered a strong Compound Annual Growth Rate (CAGR) of 7-8% since 2014, is set to double its growth momentum over the latter half of this decade, and likely reach revenue of USD 200 billion – nearly tripling its size, by 2030.

The forecast is based on a joint study (Scaling Global Competitiveness and Self-reliance) conducted by the Automotive Component Manufacturers Association of India (ACMA) and McKinsey.

The study outlines the factors driving the industry's anticipated robust march over the next five years, and expects its growth to be fuelled by the emerging trends of premiumisation of vehicles in the domestic market, advancements in alternative propulsion technologies, as well as India's strategic position in the global supply chain that will unlock more opportunities to tap exports going forward.

According to the report, while India AutoComp Inc's sales to OEMs are projected to grow from USD 62 billion in 2024 to USD 89 billion by 2030 at a CAGR of 6%, export revenues could soar from USD 21 billion in 2024 to USD 100 billion by the turn of the decade, registering a 30% CAGR.

With an expanding vehicle parc, a strong opportunity in the domestic aftermarket also augurs well, making the aftermarket category likely to touch USD 16 billion in size, with significant contributions from the passenger vehicle (PV), commercial vehicle (CV), and two-wheeler segments.

While the Indian automotive components industry forms about 3.5% of the global auto components market, on a national level, it accounts for about 25% of the country's manufacturing GDP. Despite the blip experienced during the pandemic in 2020, the report suggests that the industry has shown resilience and grown significantly over the past few years. However, growth in certain segments such as two-wheelers, continues to be challenging.

A resilient aftermarket and export expansion have also supported the healthy growth of the components sector over the last decade, making it emerge as a champion within the heavy industries umbrella. A clear example of that is the currency inflow for automotive components between 2019 and 2024. The forex inflow from component exports, estimated at USD 88 billion, exceeded imports, resulting in a trade surplus of USD 300 million for the sector.

Key challenges and opportunities
According to the report, the Indian automotive industry is on the cusp of substantial growth, with the number of households with an annual income of USD 25,000 expected to triple by 2030. This will consequently lead to the rise in spending power, and coupled with growing urbanisation (pegged at around 40%), demand for PVs and light commercial vehicles (LCVs) is likely to increase significantly. On the other hand, even rural incomes are projected to grow by 25% by 2030, thus helping drive demand for two-wheelers and entry-level passenger vehicles.

Furthermore, technological advancements as well as numerous new trends promise an exciting path for the future of automobiles. As per the study, these new trends or disruptions can be challenging as well as transformative, if leveraged optimally. While internal combustion engine (ICE) is the norm today, nine different alternative powertrains, including CNG, flex-fuel, and EVs emerging in the market could shape the components industry. These new powertrains will increase demand for specialised automotive components such as motors and lithium-ion batteries, especially as EVs, hybrids and fuel-cell electric vehicles gain momentum in the future.

Domestic EV demand in India is likely to be dominated by electric two-wheelers, which will account for about 55% of the total Li-ion cell demand. Additionally, the report mentions that four-wheelers will see EV penetration levels reach up to 15% by 2030, and command the second-largest share of Li-ion batteries owing to their size.

The cumulative Li-ion battery demand is estimated to touch 100GWh by 2030 and this rising demand is set to unlock opportunities across the five stages of lithium-ion value chain – raw material refining, active material and cell components, cell production, battery packaging and integration, and recycling. The ACMA-McKinsey report suggests that to unlock these opportunities, India could potentially tap domestic lithium reserves in J&K, while developing import partnerships with countries like Australia, Chile, and Congo.

India's rising lithium demand could also be satisfied by building upstream capabilities in the Li-ion value chain through technology partnerships, governmental support and production-linked incentives like the PLI schemes for advanced battery chemistry as well as end-of-life for batteries, suggests the report.

Localisation of electronics
The study also identifies the growing premiumisation trend as a key factor positively impacting the components industry, particularly for two-wheelers and PVs as customers increasingly demand software-first features and regulatory bodies push for advanced safety functions. This emphasis on software could intensify as the industry transitions to zonal electrical/electronic (E/E) architectures to derive enhanced vehicle functionality. 

Software-defined vehicles (SDVs) are likely to create numerous opportunities for the automotive components sector to expand its role and functioning. Apart from designing and manufacturing components like chassis, powertrains and cockpits, component makers will also be involved in developing software systems and application software for the parts they produce. 

As EVs and feature-rich vehicles are set to be key contributors of the industry’s growth by the turn of the decade, electronic components will form a major portion of the domestic demand from OEMs. As a result, while components such as sensors, cameras, and other electronics are increasingly being locally manufactured in India, the country still imports semiconductors and printed circuit boards (PCBs). However, these pose encouraging signs for the localisation of electronics in India, with companies manufacturing sensors and ECUs growing their presence in the country. Finally, as per the report, the Indian auto industry could emerge as a global automotive giant if it can leverage disrupted global supply chains and capture high-demand markets.

Export-oriented strategy
To realise its growth potential of the future, India Auto Components Inc would require concerted efforts by the four major stakeholders in the automotive ecosystem – automotive component manufacturers, OEMs, government and industry bodies such as ACMA and the Society of Indian Automobile Manufacturers (SIAM).

The report also highlights the key aspects that could be tapped into to achieve this growth ambition. Leveraging export tailwinds is on top of the list, wherein with the rebalancing of the global automotive manufacturing landscape due to the shift to alternative powertrains offers a mega opportunity for Indian component suppliers to build scale and resources for global competitiveness. Indian automotive suppliers can also build a competitive advantage in high-value components such as exhausts, cabin, and load-body parts. 

According to the study, North America and Europe are set to witness strong growth, thus propelling component exports from India to surge five times from the segment’s current valuation of USD 20 billion in 2023 to USD 100 billion by 2030. The North American market poses strong potential for Indian component makers, with made-in-India component exports slated to grow from USD 6 billoin in 2023 to USD 40 billion by 2030. 

Similarly, component exports to Europe are expected to grow from USD 6 billion to USD 35 billion, while those to Latin America will grow from USD 2 billion to USD 13 billion by 2030. The increased risk of shocks to global supply chains is the key driver for leading automotive OEMs in these markets to hedge their supplies by turning to component manufacturers from more countries. While Germany could be the prime target for Indian automotive component manufacturers to double their share of the market from being pegged at 2% in 2023 to 4% by 2030, Brazil is the largest market in Latin America where Indian component suppliers could achieve the same target. 

Focus on R&D, quality
The ACMA-McKinsey report also zeroes in on innovation and building the R&D muscle as another key pillar of growth that would drive the sector’s growth over the latter half of the decade. Through strategic alliances and by accelerating local product development, component makers can significantly increase their chances of growth by offering state-of-the-art component to their customers. As a result, establishing design and skilling centres and increasing collaboration with startups, would be critical to ensure faster time to market in a disruptive world. 

A continued journey towards quality improvement and the target to reach maturity in product quality by implementing several digital and IoT-based technologies, will be another key enabler of business growth. Furthermore, innovations in aftermarket through interventions such as direct-to-consumer retail are set to give a fillip to the sector as well.

The study summarises that while the Indian automotive components industry is at a crossroads, it is buoyed by several tailwinds such as a growing exports opportunity as well as booming domestic market. The alignment of these growth drivers with a multi-stakeholder collaborative approach that focuses on innovation, R&D and quality is likely to ensure the sector achieves its ambitions of becoming a global manufacturing hub by 2030.