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Why Investing in the Indian Automobile Sector Is the One to Look For

Hello, I am Vishal Agarwal, a student pursuing my Masters in Economics. I write blogs on Economics, Analytics and Finance.

India, a country in the South Asian region with a population of around 1.3 billion people, making it the second-most populous country, the most populous democracy in the world, and a per capita GDP of about 2300 dollars.

With around 300 million cars operating across India, the sector is split into four segments, i. e. , two-wheelers, three-wheelers, passenger vehicles, commercial vehicles,

Before Independence, only assembly work was done from the imported parts. In 1928, General Motors (India) Ltd. started assembling trucks and cars in their factory in Mumbai, and in 1930, Ford Motor Co. (India) Ltd. started assembling cars and trucks in Chennai and at Mumbai in 1931.

With the establishment of Premier Automobiles Ltd. at Kurla (Mumbai) in 1947 and Hindustan Motors Ltd. at Uttarpara (Kolkata) in 1948, the real development of the industry began.

As of 2021, there were 15 manufacturers of passenger cars and multi­utility vehicles, 9 manufacturers of commercial vehicles, 14 of two/three-wheelers, and 14 tractors, besides 5 manufacturers of engines. The industry has witnessed an investment of more than 500 billion Indian Rupees and has provided 450 thousand direct employement and about 10 million indirect employment


The Indian automotive industry is targeting to increase the export of vehicles by five times during 2016-26 and is expected to reach US$ 300 billion by 2026 with India’s annual production of automobiles in FY21-22 being 22.93 million vehicles and total passenger vehicle sales reaching 3.07 million. In April 2022 itself, 251,581 passenger vehicle units were sold.


What makes the Indian Automobile Market lucrative for investments?

The rise in middle-class income and the young population is a primary factor for its strong growth with Indian automobile exports standing at 46,548 in April 2022, a growth of 11% year on year. India has significant cost advantages with automobile firms saving 10-25% on operations vis-a-vis Europe and Latin America. The automobile sector received cumulative equity FDI inflow of about US$ 32.84 billion between April 2000 and March 2022

Market Scenario

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With reports of May 2022, Maruti Suzuki was the top passenger vehicle seller with 110,602 passenger vehicle units sold. Tata Motors sold 27,553 commercial vehicles, the highest in the segment. Hero MotoCorp sold 459,245 two-wheelers, the highest in the segment, which gave it a market share of 46.97%. Bajaj Auto was the leader in the three-wheeler category with a 35.9% market share, having sold 10,492 units in the month

In FY21-22, Mercedes-Benz topped India’s luxury car sales charts, with sales of 11,576 units with the Mercedes E-Class as the highest-selling luxury car in the Indian market, with sales of 2,834 and BMW and Audi coming in at the 2nd and 3rd positions with sales of 8,496 and 3,294 units, respectively.


Firms like Kia Motors and Volkswagen have adapted themselves to cater to the large Indian middle-class population by dropping their traditional structure and designs, allowing them to compete directly with domestic firms, making the sector highly competitive. In July 2021, Tata Motors introduced the Ace Gold Petrol CX, which is India's cheapest, most compact commercial four-wheeler vehicle, starting at Rs. 3.99 lakh or US$ 5,362.

The EV revolution in India

In the year 2021, India’s spending on electrical architecture development, such as battery development, electrification, e-motors, and power electronics, came up to US$ 6.39 billion. In the same year, Hyundai announced plans to invest US$ 530.25 million in R&D in India, to launch six EVs by 2028.

In February 2022, a memorandum of understanding (MoU) was signed between electric two-wheeler company Ather Energy and Electric Supply Companies (ESCOMs) of Karnataka for setting up 1,000 fast charging stations across the state.

A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026 with the market estimated to reach US$ 7.09 billion in India by 2025 and likely to create five crore jobs by 2030

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Vishal Agarwal

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