India’s auto components sector is seeing record growth amid changes in the global supply chain

The Indian auto components sector is on the verge of becoming a truly global player. This transformation has been a decade in the making, but has only gained momentum in the last two to three years, especially after the Covid-19 pandemic. The catalyst for this change was the reconfiguration of global automotive supply chains, shifting from Europe and China towards Southeast Asia and India.

Several factors have contributed to this shift: pandemic-driven chip shortages, the U.S.-China trade war, the Russia-Ukraine conflict, and ongoing tensions between Israel and Palestine. As supply chains are restructured, Indian auto parts makers are receiving unprecedented export orders and expanding production capacity to meet growing global demand.

Indian component makers will invest up to $7 billion in new capacity and technology upgrades as global demand increasingly shifts towards India, according to analysts at brokerage Motilal Oswal.

This shift in favor of Indian auto OEMs was highlighted by Amit Kalyani, Joint Managing Director, Bharat Forge, who has seen a significant increase in orders shifting from China and Europe to India.

Tire maker Continental is expanding its connected technology research and manufacturing capabilities in India, aiming to boost exports to Europe, East Asia and ASEAN countries. Chennai-based clutch manufacturer Valeo plans to invest near the Mahindra & Mahindra plant in Pune and localize production of electric drivetrains in India.

Agricultural and construction equipment manufacturer Escorts Kubota is expanding the localization of tractor engines and parts in India with plans to set up a new plant in Rajasthan with an investment of INR 4,500 crore. This facility will double tractor capacity over the next three to four years. In addition, EKL has started exporting components to the plants of its Japanese partner Kubota, which want to reduce dependence on Chinese parts.

Sona BLW Precision Forgings (Sona Comstar), which supplies critical systems for electrified and non-electrified powertrains, has expanded its global footprint with a new manufacturing facility in Mexico to serve U.S. OEMs seeking alternatives to Chinese suppliers.

Analysts say the Indian auto components industry has grown by over 33% in fiscal 2023, with expected growth in the “mid-decade” of the recently ended fiscal year. Over the next five years, the industry is expected to invest approximately $6.5 billion to $7.0 billion to expand production capacity and upgrade technology, almost doubling the investment of the past five years.

Indian component makers stand to benefit not only from geopolitical changes that have prompted global companies to reduce dependence on China, but also from European companies, particularly in Germany, looking to relocate due to high inflation and material costs. The success of Indian OEMs will depend on their ability to leverage cost advantages, low wage rates and a growing appetite for capacity building in the face of global change.