India’s automotive component industry is expected to post a stable revenue growth of 7–9 percent in the current fiscal year, driven by sustained domestic demand in the two-wheeler and passenger vehicle segments, particularly utility vehicles. Despite domestic resilience, challenges loom on the global front—sluggish demand in the U.S. and European markets, coupled with potential new tariffs, pose a risk to export-driven firms. Aided by a shift toward higher-margin, tech-intensive products and a softening of input costs, operating margins are expected to hold steady. Capital expenditure remains strong, but the electric vehicle segment's revenue impact remains subdued for now.
Domestic Demand Leads the Charge
The Indian automotive component sector is set for a 7–9 percent revenue increase in FY26, echoing last year’s performance. The key catalyst remains robust domestic demand, with the two-wheeler and passenger vehicle categories—especially utility vehicles—accounting for nearly half of the industry’s total revenues. These segments are expected to continue their momentum, driven by both rising urban mobility and rural recovery.
Sales of commercial vehicles and tractors, which contribute about 17 percent of total sector revenue, are forecasted to see a modest lift, further bolstering overall growth. Meanwhile, the aftermarket segment, comprising roughly 15 percent of total revenue, is projected to expand at a steady 5–7 percent, supported by an ageing vehicle fleet and a broader geographical service footprint.
Exports Face Strong Headwinds
India's auto component exports are confronting a far less favorable outlook. With the U.S. and Europe accounting for around 60 percent of outbound shipments, weakening demand in these mature markets is a key concern. As the appetite for internal combustion engine (ICE) vehicles wanes and the adoption of electric vehicles (EVs) in these geographies decelerates, Indian suppliers face subdued external demand.
Exports are now projected to grow at a slower pace of 7–8 percent this fiscal, compared to earlier expectations. A proposed 25 percent tariff on auto parts by the United States—currently the destination for 28 percent of India’s export earnings—could further strain companies with high dependency on that market. While the U.S. contributes just 5 percent to overall revenue, its outsized role in export earnings makes any disruption there particularly consequential.
Margin Stability Amid Shifting Industry Dynamics
Despite external uncertainties, operating margins in the sector are forecasted to remain stable at 12–12.5 percent. This resilience is underpinned by a structural transformation within the industry. The growing share of high-margin, technology-rich components—such as ADAS modules, infotainment systems, and advanced braking solutions—has materially lifted profitability. These components now represent about 27 percent of the sector’s revenue, a sharp rise from 18 percent before the COVID-19 pandemic.
Adding to the margin support is the easing of input costs. Prices of key raw materials like steel, aluminium, and plastic—which together constitute over 70 percent of input expenses—have moderated. This decline helps maintain profit levels even in the face of global pressures.
However, firms with significant exposure to U.S. markets may face margin compressions of up to 150 basis points due to their limited capacity to pass on the impact of new tariffs to customers.
Capital Expenditure and Credit Outlook Remain Strong
The auto component sector is undergoing a technological transformation, necessitating sustained capital investment. Companies are expected to continue deploying around ₹22,000 crore in capex during this fiscal, focused primarily on scaling up capabilities in electric vehicle platforms, automation, and precision manufacturing.
This spending spree is being financed primarily through internal accruals, minimizing the need for external borrowing. Consequently, credit profiles across the industry are expected to remain stable. Effective working capital management and strong operating cash flows have reinforced financial resilience, enabling companies to weather near-term market fluctuations.
According to Crisil Ratings, this fiscal’s capital spending aligns with evolving consumer preferences and automakers’ model pipelines, which increasingly feature EV-compatible architecture and embedded digital technology.
Electric Vehicles: High Investment, Low Immediate Returns
While investment in EV infrastructure and capability is accelerating, the financial payoff remains nascent. Electric vehicles accounted for just about 4 percent of the total passenger vehicle volume in the last fiscal year, and their revenue contribution remains marginal.
Given the high upfront investment and low scale of returns, EV-related earnings are not expected to significantly influence industry profitability in the short term. However, companies continue to prepare for a long-term transition toward cleaner mobility, banking on future demand upticks and regulatory mandates.
Conclusion: Resilience at Home, Caution Abroad
India’s auto component industry finds itself at a crossroads. Buoyed by domestic momentum and technological innovation, the sector appears well-positioned for stable growth and sustained margins. However, global trade volatility, weak overseas demand, and tariff risks pose tangible threats that companies cannot ignore.
The ability of Indian auto parts manufacturers to adapt their export strategies, hedge against geopolitical risks, and continue investing prudently in technology will determine whether the current resilience can be translated into long-term strength.
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