India’s automotive landscape is undergoing a massive transformation. Surpassing Japan in 2025 to become the world’s third-largest automobile market, India ranks 2nd in the global production of buses and coaches, 3rd in passenger cars, and 4th in Commercial Vehicles (CVs). According to Rubix Industry Insights, domestic sales of Passenger Vehicles (PVs) grew at an 11 per cent Compound Annual Growth Rate (CAGR) from 2.71 million units in FY2021 to 4.64 million units in FY2026, with production reaching 5.54 million units (13 per cent CAGR). Concurrently, CV sales surged at a 14 per cent CAGR to 1.08 million units, supported by a 13 per cent CAGR in production (reaching 1.17 million units in FY2026).

Indian automotive production and sales

• PV Production (FY21-FY26): 3.06M -> 5.54M Units (13 per cent CAGR)

• PV Sales (FY21-FY26): 2.71M -> 4.64M Units (11 per cent CAGR)

• CV Production (FY21-FY26): 0.62M -> 1.17M Units (13 per cent CAGR)

• CV Sales (FY21-FY26): 0.57M -> 1.08M Units (14 per cent CAGR)

This sustained volume growth, coupled with structural shifts towards Utility Vehicles (UVs), Medium and Heavy Commercial Vehicles (MHCVs), and rapid powertrain electrification, is redefining the mandate for the automotive components sector. Auto component suppliers are moving from build-to-print component manufacturing towards high-value, tech-enabled, highly localised system integration.

Macro Dynamics in PV and CV Markets

The auto component market’s expansion is directly tied to structural evolutions within Original Equipment Manufacturer (OEM) production lines:

1. The utility vehicle dominance

The domestic PV market has witnessed a preference shift towards UVs (SUVs and crossovers) that offer higher ground clearance, cabin space, and advanced safety suites. UV sales share skyrocketed from 39 per cent of total PV sales in FY2021 to 65 per cent in FY2025, supported by a 28 per cent CAGR in production. Conversely, passenger car production saw a minor contraction (-0.3 per cent CAGR). For component manufacturers, SUVs demand higher-spec structural chassis, larger alloy wheels, advanced suspension systems, and complex interior trim components compared to entry-level hatchbacks.

PV sales composition shift (FY2021 vs. FY2025)

• FY2021: Passenger Cars: 57 per cent | UVs: 39 per cent | Vans: 4 per cent

• FY2025: Passenger Cars: 31 per cent | UVs: 65 per cent | Vans: 4 per cent

2. Freight acceleration and heavy commercialisation

CV market dynamics demonstrate a parallel upscale. Supported by government capital expenditure, infrastructure projects (PM Gati Shakti, Bharatmala Pariyojana), and expanding mining/construction sectors, MHCV sales expanded at a 24 per cent CAGR between FY2021 and FY2025. MHCVs’ share in total CV sales climbed from 28 per cent in FY2021 to 39 per cent in FY2025. Larger payload capacities and long-haul transport requirements drive increased content-per-vehicle for heavy-duty axles, robust braking systems, telematics, and Automated Manual Transmissions (AMTs).

3. Economic and policy support mechanisms

• Taxation and monetary policy: The introduction of GST 2.0 in September 2025 removed the Compensation Cess on domestically manufactured PVs, lowering acquisition costs. Coupled with a 25 bps RBI repo rate cut (to 5.25 per cent in December 2025), with the repo rate remaining unchanged thereafter, vehicle loan growth (comprising all types of vehicles) expanded at a 16 per cent CAGR (reaching Rs 7.4 trillion in FY2026).

• Scrappage and replacement: With 42 per cent of the MHCV fleet (nearly 2 million vehicles) aged between 8.5 and 10 years, the Mandatory Vehicle Scrappage Policy (requiring fitness tests after 8 years for CVs and 20 years for private PVs) is driving replacement cycles.

Electrification and advanced technologies

The progressive transition away from traditional Internal Combustion Engine (ICE) powertrains is changing component requirements. Clean Mobility Shift EV Dashboard data reveals Four-wheeler (4W) EV penetration rose from 1.11 per cent in 2022 to 5.35 per cent in 2026.

4W EV penetration trajectory (2022 - 2026)

2022: 1.11 per cent | 2023: 2.13 per cent | 2024: 2.40 per cent | 2025: 3.87 per cent | 2026: 5.35 per cent (as of July 2026)

Policy push:

Government schemes are propelling zero-emission manufacturing:

• PLI scheme for auto and auto components: With an outlay of Rs 259.38 billion (extended to FY2027–28), the Champion OEM and Component Incentive Schemes drive the domestic production of Advanced Automotive Technology (AAT) parts. Approved vehicles include battery electric SUVs (eg, Tata Harrier EV) and heavy trucks/buses (eg, Tata Prima EV, Eicher Skyline Pro E).

• PM E-DRIVE and PM-eBus Sewa: Outlays of Rs 109 billion and Rs 576 billion (targeting 10,000 e-buses), respectively, are creating a localised demand for e-bus chassis, traction motors, and high-voltage power electronics.

The component bill of materials shift

1. Electric drivetrain systems: Traditional engine components (pistons, fuel injection, exhaust systems) are being supplemented by e-axles, electric motors, inverter modules, thermal management units, and Battery Management Systems (BMS).

2. ADAS and electronics: Level 2 ADAS adoption in PVs grew from 6.2 per cent in H1 2024 to 8.3 per cent in H1 2025. Regulatory mandates for Automatic Emergency Braking (AEB), Lane Departure Warning Systems (LDWS), and Driver Drowsiness Warning (DDW) across M2/M3 buses and N2/N3 heavy trucks are driving the localised manufacturing of automotive radars, cameras, control units, and sensor arrays.

3. BS-VII and emission tech: The upcoming Euro 7-aligned BS-VII emission norms (expected notification FY2026–27, rollout by FY2030–31) will add an estimated cost of Rs 30,000 to Rs 1,000,000 per vehicle. Component makers are developing advanced exhaust after-treatment architectures, Selective Catalytic Reduction (SCR) setups, On-Board Diagnostics (OBD-III), and Gasoline Particulate Filters (GPF).

Global Integration, Exports, and Supply Chain Dynamics

India’s auto component ecosystem is benefiting from global OEM export strategies and supply chain diversification.

Key vehicle export destinations (FY2025)

• Passenger vehicles: South Africa (18 per cent), Saudi Arabia (17 per cent), Mexico (13 per cent)

• Trucks: Saudi Arabia (21 per cent), South Africa (11 per cent), Indonesia (10 per cent)

• Buses: UAE (42 per cent), Saudi Arabia (8 per cent), Qatar (7 per cent)

1. Export surges across PV and CV

 PV exports expanded at a 17 per cent CAGR between FY2021 and FY2025, reaching 0.77 million units, led by global models like Maruti Suzuki’s Fronx/Jimny and Hyundai’s Verna/Exter. Maruti Suzuki hit a record export volume of 4.47 lakh units in FY2025–26. CV exports reached 0.08 million units, with key markets including Saudi Arabia (21 per cent of truck exports) and the UAE (42 per cent of bus exports). This expands the global addressable market for Indian component suppliers supplying these export platforms.

2. Supply chain vulnerabilities and cost pressures

• Geopolitical disruptions: The conflict in West Asia has highlighted supply chain vulnerabilities. In July 2026, war-risk insurance premiums surged by up to 1,000 per cent around the Strait of Hormuz and Red Sea shipping channels, while crude oil price spikes (+25 per cent) raised input costs for synthetic rubbers and plastics. This led to OEM price hikes (eg, Maruti Suzuki raising prices by up to Rs 30,000 in August 2026).

• Raw material volatility: Hot Rolled Coil (HRC) steel prices experienced swings (+69 per cent FY2020–FY2022, -16 per cent FY2023–FY2025), while export restrictions on rare earth minerals impacted EV motor and battery supply chains.

• Ethanol blending (E20) transition: India achieved its 20 per cent ethanol blending target (E20) in 2025. Component suppliers are modifying legacy fuel systems, replacing rubber gaskets, seals, and fuel lines on older vehicle platforms to ensure long-term E20 material compatibility.

OEM investment wave and strategic imperatives for suppliers

Major automakers are executing massive capital expenditure plans to scale production capacities, providing clear volume visibility for auto component players: