The Indian automotive component industry is poised for significant growth, with ICRA projecting an 8-10% expansion in the fiscal year 2025-26 (FY26). This follows a robust 14% growth in FY24 and an anticipated 7-9% increase in FY25. Key drivers of this upward trajectory include strong export performance, increased localisation of electric vehicle (EV) components, and a surge in aftermarket demand.

To support this growth, the sector is expected to undertake capital expenditures ranging from ₹25,000 crore to ₹30,000 crore in FY26. These investments will focus on capacity expansion, localisation efforts, and technological advancements, particularly in EV components. Currently, only 30-40% of the EV supply chain is localised, with significant progress in areas like traction motors, control units, and battery management systems. However, battery cells, accounting for 35-40% of a vehicle's cost, remain entirely imported, presenting substantial opportunities for domestic manufacturers.

Domestic Original Equipment Manufacturers (OEMs), contributing over half of the industry's revenue, are expected to drive demand through premiumisation and higher value addition. The replacement market is also projected to grow by 5-7% in FY25 and 7-9% in FY26, fueled by an aging vehicle population, increased used car sales, and a trend toward preventive maintenance.

Exports, which constitute nearly 30% of the industry's revenue, may face challenges due to sluggish vehicle registration growth in key markets. Nonetheless, global OEMs and Tier-1 suppliers' vendor diversification and increased outsourcing are expected to support growth. India's metal castings and forgings industry stands to benefit from the closure of European Union plants facing viability issues. Additionally, the aftermarket segment is anticipated to see increased demand both domestically and internationally, particularly in lubricants and safety-critical components.

Despite uncertainties surrounding tariffs on raw materials like steel and aluminium, India continues to solidify its position as a global manufacturing hub. The "China Plus One" strategy has led to increased export orders for Indian manufacturers, especially in forgings and castings for engine and transmission components. Supply chain diversification strategies in the US and Europe further position India as an attractive alternative manufacturing base.

The auto component industry is also witnessing strong interest from private equity investors, driven by regulatory changes, technological advancements, and supply chain diversification needs. This has resulted in increased mergers and acquisitions, particularly in software-driven solutions, AI integration, and EV component manufacturing. Government initiatives like the FAME scheme and Bharat NCAP safety regulations are further strengthening the industry's value chain.

While strides are being made in EV component localisation, India remains dependent on imports for lithium-ion battery cells, especially in lithium iron phosphate and nickel manganese cobalt chemistries. Efforts are underway to develop indigenous battery technologies, but achieving cost competitiveness remains a challenge. Industry experts suggest that while complete decoupling from imports is unlikely in the short term, strategic global partnerships will be essential to enhancing India's battery manufacturing capabilities.