Indian Auto Component Industry Positioned for Growth Amid Challenges

The Indian auto component industry is projected to grow by 8-10% in 2025-26, despite facing challenges such as rising ocean freight rates. The sector is embracing localisation and technological advancement to mitigate risks. Opportunities exist in sustainability and global competitiveness, driven by domestic OEM demand and replacement market growth.

The Indian auto component industry is poised for a significant revenue expansion, estimated by rating agency ICRA to reach an 8-10% growth margin in the financial year 2025-26. This projection comes despite a current forecasted decline to 7-9% for 2024-25 from a previous high of 14% in 2023-24.

However, operating margins are expected to maintain a steady range between 11-12% during 2024-25 and 2025-26. This stability is attributed to benefits from operating leverage, increased vehicle content, and enhanced value addition. Freight disruptions along the Red Sea have notably tripled ocean freight rates between 2023 and 2024, posing a risk for auto component suppliers with significant trade dependencies.

With an estimated capital expenditure of Rs 25,000-30,000 crore targeted for capacity expansion and technological enhancements, the industry aims to bolster localisation and innovation. Currently, 30-40% of the EV supply chain is localised. While significant strides have been made in localising traction motors and control units, battery cells remain fully imported, prompting further investment opportunities.

ICRA highlights a pivotal shift towards sustainability and innovation within the sector, propelled by a growing demand from domestic OEMs, accounting for over 50% of industry revenue. Expected to grow by 7-9% in 2024-25 and 8-10% in 2025-26, this demand supports premiumisation and value addition. Replacement demand is also on the rise, driven by an expanding vehicle parc and mature vehicle demographics.

Global market trends, including plant closures in the EU, present export opportunities for Indian players, particularly in metal castings and forgings. ICRA cautions that any potential import tariffs could impact global competitiveness for Indian exports.