The automobile industry is a driving force of the economy, with its performance often reflecting the overall health of the nation. India is home to the world’s third-largest automobile industry, producing 28.43 million vehicles in FY 2023-24.
India’s auto sector has undergone a significant transformation, moving from a two-wheeler-dominated market to a rapid shift toward electric vehicles (EVs). Let’s explore the current market size, opportunities, challenges, and global sentiment surrounding India’s automobile industry.
Current Market Size of India’s Automobile Sector
India holds a strong position in heavy vehicle manufacturing, ranking as the world’s largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck producer. In FY23, India produced 25.9 million automobiles, which increased to 28.43 million in FY24. The sector contributes 7.1% to India’s GDP and directly and indirectly employs 19 million people.
According to a June 2024 report by DPIIT, the automobile sector attracted 5.27% of total FDI inflows. Along with its presence in traditional categories, India is making significant strides in the EV sector. The EV market in India is projected to reach $113.99 billion by 2029, growing at a CAGR of 66.52%.
Additionally, the hybrid car market is expanding rapidly. From January to July 2024, hybrid car sales (both strong and plug-in versions) rose by 27%, reaching 51,897 units, compared to 40,811 units in the same period last year.
Automobile production has gained momentum after the slowdown caused by the COVID-19 pandemic.
Challenges Faced by Traditional Auto Manufacturers
Despite India’s robust automobile industry, major urban centres such as Delhi-NCR, Bengaluru, Mumbai, and Kolkata are grappling with severe air pollution, with vehicular emissions significantly contributing to poor air quality. According to the IEA, around 12% of CO2 emissions in India are due to road transport, making government actions to combat air pollution crucial for the sector.
India imports 85% of its crude oil requirements, making it vulnerable to fluctuations in global oil prices. Rising oil prices, driven by geopolitical tensions, impose additional financial burdens on consumers, prompting them to shift towards public transport or alternative fuel-based vehicles.
Issues Plaguing the Electric Vehicle Industry
The electric vehicle (EV) industry faces several significant challenges:
Lack of Charging Infrastructure: One of the main barriers to EV adoption is the lack of charging infrastructure, especially in rural and remote areas. This leads to ‘range anxiety’ among consumers — fear of running out of power with no charging station nearby. The government plans to build 46,397 EV charging stations in nine cities by 2030 to address this issue.
High Costs: The initial cost of purchasing EVs remains higher than that of conventional petrol and diesel vehicles, primarily due to expensive batteries. India’s reliance on imports to meet domestic battery demand exacerbates this issue. Developing a robust domestic battery manufacturing sector is essential to overcome this challenge and lower costs.
Awareness: Many consumers are unaware of the benefits, maintenance, and functionality of electric vehicles, leading to scepticism among potential buyers. To raise awareness, the government launched the Electric Mobility Promotion Scheme with an outlay of Rs 500 crore from April to July 2024, aiming to generate interest in EVs.
Automobile Exports from India
India is one of the world’s largest automobile exporters. In FY24, India exported 4.5 million vehicles, a 5.5% decline from FY23’s 4.76 million units due to the global economic crisis. The export of commercial vehicles, two-wheelers, and three-wheelers dropped significantly. However, passenger vehicle exports provided some relief, growing by 1.4% from 6,62,703 units in FY23 to 6,72,105 units in FY24.
India continues to solidify its position as a major auto export hub.
Government Initiatives to Boost the Automobile Sector
Several government initiatives are in place to boost the auto industry:
Production Linked Incentive (PLI) Scheme: The Ministry of Heavy Industries launched the PLI scheme to promote domestic manufacturing of automobiles and auto components with a budget of Rs 25,938 crore for five years (FY 2023-27). In January 2024, the government extended the scheme’s tenure to March 2028.
FAME 2 Scheme: Launched to promote the production and sale of electric vehicles, this scheme has a total budget of Rs 10,000 crore. Initially set for 2019-2022, it was extended to March 2024. As of January 2024, Rs 5,790 crore in subsidies have been distributed, supporting the sale of 1.34 million EVs.
Semiconductor Manufacturing: The government is investing heavily in domestic semiconductor production to overcome the global chip shortage that has hampered automobile production. Three semiconductor units are currently under construction.
Top Performing Automobile Stocks to Watch
With the automobile industry rebounding, the festive season could see a boost in auto sales, potentially driving stock performance. Here are some automobile stocks to keep an eye on:
What’s Next?
The future growth of India’s automobile sector hinges on several factors, including access to skilled labour, R&D investment, and the low-cost availability of materials like steel. Disruptions to any of these factors could cause turbulence for the sector, impacting its momentum.
The government is actively supporting the industry, with a strong focus on alternative fuel vehicles. The vehicle scrappage policy of 2021 and India’s Bharat NCAP safety assessment program highlight the government’s commitment to innovation and sustainability in the auto sector.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
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