Indian Auto Component Industry Outlook for 2025-26

The Indian auto component industry is poised for growth in the upcoming financial year 2025-26. According to a recent report by ICRA, the industry is expected to see a revenue increase of 8-10%. This follows a projected decline in revenue growth to 7-9% for the current financial year 2024-25, down from a robust 14% in 2023-24. The report highlights various factors influencing this trend, including operating margins, global supply chain disruptions, and the ongoing transition towards electric vehicles (EVs).

Revenue Growth Projections

The Indian auto component sector is experiencing a transitional phase. ICRA estimates that revenue growth will stabilize at 7-9% for 2024-25, with a rebound to 8-10% in 2025-26. This growth is largely driven by domestic original equipment manufacturers (OEMs), which account for over half of the industry’s revenue. The demand from OEMs is expected to rise due to the premiumization of components and increased value addition.

Additionally, the replacement demand for auto components is projected to grow at a rate of 5-7% in 2024-25 and 7-9% in 2025-26. This increase is attributed to several factors, including an expanding vehicle parc, the aging of vehicles, and a rise in used car purchases. Preventive maintenance and the growth of organized spare parts markets also contribute to this demand. As the industry adapts to changing consumer preferences and market dynamics, the focus on sustainability and innovation will play a crucial role in shaping future growth.

Challenges from Global Supply Chain Disruptions

The auto component industry is not without its challenges. One significant issue is the disruption along the Red Sea route, which has led to a dramatic increase in ocean freight rates. In 2024, these rates surged by 2-3 times compared to 2023. Such increases can significantly impact the margins of auto component suppliers, especially those heavily reliant on exports or imports.

ICRA warns that any further sharp and sustained increases in ocean freight rates could pose additional challenges for the industry. Companies with substantial international trade exposure may need to reassess their supply chain strategies to mitigate risks. The report emphasizes the need for domestic suppliers to enhance their localization efforts to reduce dependency on imports and improve competitiveness in the global market.

Investment in Capacity Expansion and Localization

To support future growth, ICRA estimates that the auto component industry will invest between Rs 25,000-30,000 crore in 2025-26. This capital expenditure will focus on capacity expansion, localization, and technological advancements, particularly in the EV sector. Currently, only 30-40% of the EV supply chain is localized, indicating a significant opportunity for domestic suppliers.

Over the years, there has been notable progress in localizing components such as traction motors, control units, and battery management systems. However, battery cells, which account for 35-40% of vehicle costs, remain entirely imported. The relatively low level of localization presents a unique opportunity for domestic manufacturers to fill this gap and meet the growing demand for EVs.

Future Opportunities and Market Dynamics

The Indian auto component industry is at a crossroads, with numerous opportunities emerging from changing market dynamics. The closure of plants in the European Union due to viability issues opens doors for Indian players in metal castings and forgings. Additionally, the aging of vehicles and the increasing sale of used vehicles in global markets are expected to boost exports in the replacement segment.

While the industry faces challenges, such as potential import tariffs on exports, the overall outlook remains positive. The focus on sustainability, innovation, and global competitiveness will drive the industry forward. As domestic suppliers adapt to these changes, they will play a crucial role in shaping the future of the Indian auto component sector.

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