India is the world’s third-largest automobile market, the largest manufacturer of three-wheelers, passenger vehicles, and tractors, and the second-largest manufacturer of two-wheelers.
Advantage India
Growing
Demand
* Rising middle-class income and a huge youth population will result in strong demand.
* In November 2023, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 2.22 million units.
* The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by 5 times to US$ 1,318 billion.
Opportunities
* India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
* Focus is shifting to electric vehicles to reduce emissions.
* By 2030, the Indian government has committed that 30% of the new vehicle sales in India would be electric.
Rising
Investment
* The automobile sector received a cumulative equity FDI inflow of about US$ 35.40 billion between April 2000 - September 2023.
* India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.
Policy
Support
* Automotive Mission Plan 2016-26 is a mutual initiative by the Government of India and the Indian automotive industry to lay down the roadmap for the development of the industry.
* FAME Scheme was extended for a further period of 2 years up to March 31st, 2024.
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Last updated: Feb, 2024
Introduction
The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. The two-wheelers segment dominates the market in terms of volume, owing to a growing middle class and a huge percentage of India’s population being young. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fueled by new trends including the electrification of vehicles, particularly three-wheelers and small passenger automobiles.
India enjoys a strong position in the global heavy vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck manufacturer in the world. India’s annual production of automobiles in FY22 was 22.93 million vehicles. India has a strong market in terms of domestic demand and exports. In November 2023, total passenger vehicle sales reached 3,34,130*. Sales of Passenger Vehicles in November 2023 have been the highest, with a marginal growth of 3.7%, compared to November 2022. In FY23, total automobile exports from India stood at 47,61,487. This sector's share of the national GDP increased from 2.77% in 1992-1993 to around 7.1% presently. It employs about 19 million people directly and indirectly.
India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India such as the Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market by 2022.
Market Size
The Indian passenger car market was valued at US$ 32.70 billion in 2021, and it is expected to reach a value of US$ 54.84 billion by 2027 while registering a CAGR of over 9% between 2022-27. The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by 5 times to US$ 1,318 billion.
In November 2023, the total production of passenger vehicles*, three-wheelers, two-wheelers, and quadricycles was 2.22 million units. In (April-November) 2023-24, the total production of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles was 15.56 million units.
In the first quarter of 2023-24*, total production of passenger vehicles, commercial vehicles, three wheelers, two wheelers, and quadricycles was 6.01 million units.
India accomplished a significant milestone, with the sale of 8,32,434 EVs in 2023-24 (till August 2023).
The electric vehicle (EV) market is estimated to reach Rs. 50,000 crore (US$ 7.09 billion) in India by 2025. A study by CEEW Centre for Energy Finance recognised a US$ 206 billion opportunity for electric vehicles in India by 2030. This will necessitate a US$ 180 billion investment in vehicle manufacturing and charging infrastructure.
According to NITI Aayog and the Rocky Mountain Institute (RMI), India's EV finance industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion) by 2030. A report by the India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, the projection for the EV battery market is expected to expand at a CAGR of 30% during the same period.
Indian automotive industry is targeting to increase the export of vehicles by five times during 2016-26. In FY23, total automobile exports from India stood at 47,61,487. Indian automobile exports of two-wheelers stood at 36,52,122 in FY23.
Investments
To keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The automobile sector received a cumulative equity FDI inflow of about US$ 35.40 billion between April 2000 - September 2023. India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.
Some of the recent/planned investments and developments in the automobile sector in India are as follows:
- Ola Electric IPO to be the first auto company in India to launch an IPO in over two decades (20 years). It has an expected size of Rs. 8,500 crore (US$ 1.01 billion).
- In November 2023, Mercedes-Benz sold 1,234 luxury cars, the highest in the segment, which gave it a market share of 0.34%. BMW sold 1,000 cars in November 2023.
- In November 2023, Tata Motors inaugurated its state-of-the-art Registered Vehicle Scrapping Facility in Chandigarh.
- In October 2023, Hero MotoCorp inaugurated its first state-of-the-art premium dealership in India.
- In October 2023, Tata Motors signed a definitive agreement to acquire a 27% stake in Freight Tiger, a software-as-a-service (SaaS) company, for Rs. 150 crore (US$ 17.99 million).
- India accomplished a significant milestone, with the sale of 8,47,439 EVs in FY24 (till August 2023). A y-o-y growth of 209.17% was witnessed with 1.02 million registered EVs in FY23, as compared to FY22.
- In July 2023, Renault Nissan announced plans to invest US$ 1,68,762.86 (Rs. 1.4 crore) to upgrade infrastructure at eight schools near Chennai.
- In July 2023, Mahindra & Mahindra was in advanced talks with British International Investment (BII) and some other global investors to raise up to US$ 602.72 million (Rs. 5,000 crore) for its electric vehicles (EV) unit.
- In June 2023, Tata Motors announced to invest US$ 2 billion towards developing new products and platforms over the next four years.
- In June 2023, Hero MotoCorp revealed plans to invest up to US$ 180.81 million (Rs. 1,500 crore) for developing premium bikes and EVs in India.
- In June 2023, Kinetic Green Energy and Power Solutions revealed plans to raise up to US$ 100 million by selling a 10-15% stake in the company to investors.
- In May 2023, Maruti Suzuki India revealed plans to invest over US$ 5.5 billion to double capacity by 2030.
- In April 2023, Power Finance Corporation Ltd (PFC) approved US$ 76.39 million (Rs. 633 crore) loan for 5,000 passenger EVs and 1000 cargo EVs.
- In March 2023, the Central government sanctioned US$ 72.41 million (Rs. 800 crore) under FAME India Scheme Phase II to Indian Oil (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL), for setting up 7,432 public fast charging stations across the country.
- In the January-June period this year, Mercedes-Benz posted its best-ever half-yearly sales in India at 8,528 units, a growth of 13% a year-ago. During the same period BMW and Audi came at the 2nd and 3rd position with sales of 5,867 and 3,474 units, respectively.
- In February 2023, Nissan and Renault revealed plan to invest US$ 600 million in India over the next 3-5 years to expand their market share in passenger cars and electric vehicles.
- In February 2023, German luxury car maker Audi India began local production of the Audi Q3 and Audi Q3 Sportback at the Skoda Auto Volkswagen India Private Limited (SAVWIPL) plant in Aurangabad.
- In January 2023, MG Motor India announced plans to invest US$ 100 million to expand capacity, eyes 70% growth in 2023.
- In January 2023 at the Auto Expo 2023, Tata Motors announced to launch Tata Altroz CNG.
- Tata Group Chairman, Mr. N Chandrasekaran said that "EV contribution in our portfolio is likely to increase to 25% in five years and reach 50% by 2030, thus significantly increasing investments in this sector“ in January 2023.
- In January 2023, Global chief executive officer (CEO) Mr. Ola Kallenius said that India was Mercedes-Benz’s fastest-growing market worldwide in 2022 and plans on investing more.
- Indian carmakers commit US$ 10 billion to add new capacity of 2.2 to 3 million units.
- In December 2022, Mahindra & Mahindra to invest Rs. 10,000 crore (US$ 1.2 billion) for an EV manufacturing plant in Pune.
- In November 2022, Maruti Suzuki India announced plans to spend nearly Rs. 7,000 crore (US$ 865.12 million) on several projects this year, including the building of its new facility in Haryana and the introduction of new models.
- In October 2022, the total production of passenger vehicles*, three wheelers, two wheelers, and quadricycles was 2,191,090 units.
- In October 2022, Maruti Suzuki was India’s biggest car seller, with 136,700 units sold.
- In October 2022, Hero MotoCorp sold 507,587 two-wheelers, the highest in the segment, which gave it a market share of 32.31%.
- In September 2022, Kinetic Engineering Limited (KEL) invested in Ahmednagar to set up a dedicated production line with an initial capacity of 5,000 sets per month.
- In September 2022, Maruti Suzuki launched the Grand Vitara at a starting price of Rs. 10.45 lakh (US$ 12,915).
- In September 2022, Hero MotoCorp announced an investment of US$ 60 million in California-based Zero Motorcycles to collaborate on the development of electric motorcycles.
- In August 2022, Volkswagen Group's Indian subsidiary, Skoda Auto Volkswagen India, has begun a feasibility study for its next phase of investment in India after rolling out its India 2.0 strategic plan.
- In July 2022, TVS Motor lines up fresh investments of Rs. 1,000 crore in EV push.
- In April 2022, Tata Motors announced plans to invest Rs. 24,000 crore (US$ 3.08 billion) in its passenger vehicle business over the next five years.
- In March 2022, MG Motors, owned by China's SAIC Motor Corp, announced plans to raise US$ 350-500 million in private equity in India to fund its future needs, including EV expansion.
- In March 2022, Hyundai plans US$ 79.2 billion investment through 2030, to focus majorly on EVs.
- In February 2022, a memorandum of understanding (MoU) was signed between electric two-wheeler company Ather Energy and Electric Supply Companies (ESCOMs) of Karnataka for setting up 1,000 fast charging stations across the state.
- In February 2022, Tata Power and Apollo Tyres Ltd announced a strategic partnership for the establishment of 150 public charging stations across India.
- In January 2022, Kinetic Green Energy announced plans to invest Rs. 80-100 crore (~US$ 10-13 million) in a two-wheeler EV project, in collaboration with Chinese EV major Aima Technology Group.
- Two-wheeler EV maker HOP Electric Mobility, a diversified business venture of Rays Power Infra, is looking at investing Rs. 100 crore (US$ 13.24 million) over the next two years to expand manufacturing capacity for its EVs.
- Investment flow into EV start-ups in 2022 (until September 15) has raised funds worth around US$ 673 million, according to Fintrackr.
- In December 2021, TVS Motor Company and BMW Motorrad, announced a partnership in the two-wheeler EV space, with plans to release their first electric two-wheeler within the next two years.
- In December 2021, Hyundai announced plans to invest Rs, 4,000 crore (US$ 530.25 million) in R&D in India, to launch six EVs by 2028.
- 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 EV ambitions.
Government Initiatives
The Government of India encourages foreign investment in the automobile sector and has allowed 100% FDI under the automatic route. Some of the recent initiatives taken by the Government of India are:
- The FAME Scheme was extended for a further period of 2 years up to 31st March, 2024
- In January 2023, under the FAME-II scheme, the Centre approves US$ 97.77 million (Rs. 800 crore) for 7432 public fast charging stations.
- In July 2022, Gujarat government announced a semiconductor policy, where it will set up Dholera Semicon City and offered incentives for investment in this sector.
- In July 2022, the Government amended the National Policy on Biofuels – 2018. The target of 20% blending of ethanol in petrol and 5% blending of biodiesel in a diesel by 2030 was brought forward to 2025-26.
- As of July 15, 2022, under the FAME India Scheme I & II, a total of 532 EV charging stations have been installed by oil companies under the Ministry of Petroleum and Natural Gas (MoPNG).
- In February 2022, Mr. Nitin Gadkari, Minister of Road Transport and Highways, revealed plans to roll out Bharat NCAP, India’s own vehicle safety assessment program.
- In February 2022, 20 carmakers, including Tata Motors Ltd, Suzuki Motor Gujarat, Mahindra and Mahindra, Hyundai, and Kia India Pvt. Ltd was chosen to receive production-linked incentives (PLI) as part of the government's plan to increase local vehicle manufacturing and attract new investment. The 20 automobile companies have proposed a total investment of around Rs. 45,000 crore (US$ 5.95 billion).
- In the Union Budget 2022-23, the government laid out the following initiatives:
- The government introduced a battery-swapping policy, which will allow drained batteries to be swapped with charged ones at designated charging stations, thus making EVs more viable for potential customers.
- India’s National Highways would be expanded by 25,000 km in 2022-23 under the Prime Minister’s Gati Shakti Plan.
- In November 2021, the Union Government added >100 advanced technologies, including alternate fuel systems such as compressed natural gas (CNG), Bharat Stage VI compliant flex-fuel engines, electronic control units (ECU) for safety, advanced driver assist systems and e-quadricycles, under the PLI scheme for automobiles.
- In September 2021, Minister of Road Transport and Highways, Mr. Nitin Gadkari, announced that the government is planning to make it mandatory for car manufacturers to produce flex-fuel engines after getting the required permissions from the Supreme Court of India.
- In September 2021, the Indian government issued a notification regarding a PLI scheme for automobile and auto components worth Rs. 25,938 crore (US$ 3.49 billion). This scheme is expected to bring investments of over Rs. 42,500 (US$ 5.74 billion) by 2026 and create 7.5 lakh jobs in India.
- In August 2021, Prime Minister Mr. Narendra Modi launched the Vehicle Scrappage Policy, which aims to phase out old polluting vehicles in an environmentally safe manner.
- The Indian government has planned US$ 3.5 billion in incentives over five years until 2026 under a revamped scheme to encourage the production and export of clean technology vehicles.
- In July 2021, India inaugurated the NATRAX, which is Asia’s longest high-speed track and the fifth largest in the world.
- As of June 2021, Rs. 871 crore (US$ 117 million) have been spent under the FAME-II scheme, 87,659 electric vehicles have been supported through incentives, and 6,265 electric buses have been sanctioned for various state/city transportation undertakings.
- In May 2021, the Central Government approved a PLI scheme for manufacturing Advanced Chemistry Cells (ACC) with a budget of Rs. 18,100 crore (US$ 2.33 billion). In March 2022, four firms, namely Reliance New Energy Solar Limited, Ola Electric Mobility Private Limited, Hyundai Global Motors Company Limited, and Rajesh Exports Limited, were elected to receive the incentives.
Road Ahead
The automobile industry is dependent on various factors such as the availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great investment opportunities and direct and indirect employment to skilled and unskilled labour. The electric vehicles industry is likely to create five crore jobs by 2030.
In August 2022, the Indian government launched India’s first double-decker electric bus in Mumbai. Looking long term, the government feels it is necessary to overhaul the country’s transportation system. It is working to create an integrated electric vehicle (EV) mobility ecosystem with a low carbon footprint and high passenger density with an emphasis on urban transportation reform. The government's strategy and policies are intended to promote greater adoption of electric vehicles in response to growing customer demand for cleaner transportation options.
The Government of India expects the automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023. India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
The Indian auto industry is expected to record strong growth in 2022-23, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2022-23.
Notes: *Data except for BMW, Mercedes, Tata Motors & Volvo Auto
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), Union Budget 2023-24
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