Automobile Industry on the Cusp of Major Disruption with Transition to Electric Mobility, Says CRISIL

Fiscal 2024 proved to be a mixed year for India’s automobile sector, with several challenges impacting exports. Economic slowdowns in key global markets, tightening fiscal policies, and geopolitical tensions negatively affected overseas shipments.

Exports of two-wheelers, tractors, and commercial vehicles saw notable declines of 5%, 21%, and 16%, respectively, while the auto parts sector fared better, recording a 12% growth.

In FY2025, the Indian automobile industry stands on the brink of one of its biggest transformations as it moves toward electric mobility. This shift marks the beginning of a major disruption in the sector, CRISIL said in its India Progress Report, November 2024.

The rapid adoption of electric two-wheelers and passenger vehicles, along with the government’s supportive policies, is reshaping the industry. However, challenges remain in segments like commercial vehicles and tractors, where the transition has been slower.

Let’s take a closer look at the current state of India’s Automobile sector and its future growth prospects.

Which Segment Is Seeing Faster EV Adoption?

CRISIL highlights that the shift to electric vehicles (EVs) is particularly noticeable in two-wheelers and passenger cars, driven by rising adoption and government support, such as incentives and policies promoting EVs.

However, the shift is happening more slowly in areas like commercial vehicles (CVs) and tractors, as these sectors face unique challenges, such as the higher cost and different operational needs that make electric models less attractive compared to traditional internal combustion engine (ICE) vehicles.

Auto Component Players Driving EV Shift

As per CRISIL, Auto component players are at the forefront of the transition to EVs, supplying critical components such as motors and inverters not only to domestic players but also to developed nations.

In fiscal 2024, the Indian auto components sector has demonstrated robust performance, with domestic production revenue reaching approximately ₹5,324 billion. This marks a 12% compound annual growth rate (CAGR) from fiscal 2019 to 2024.

The sector also recorded ₹1,106 billion in exports meanwhile, imports totalled ₹1,042 billion, reflecting the need for certain high-tech components not yet domestically available. The electric vehicle (EV) parts market continues to gain momentum, contributing around 4-6% of the overall market size in fiscal 2024.

Outlook for the Sector 

As per CRISIL, the capital expenditure (capex) is projected to reach ₹3.0-3.1 lakh crore during fiscal 2020-2024, a 30% increase from the previous period of 2015-2019, the report added.

Looking ahead, overall automobile capex is expected to rise by 40% between fiscal 2025 and 2029, with a significant shift in focus. While ICE (Internal Combustion Engine) related investments are projected to decline, EV-specific capex is set to grow and will represent 45-50% of the total, compared to just 10% in the past 5 years.

The increasing interest from private equity and sovereign wealth funds in the EV sector is driving the entry of new players in the electric two-wheeler and three-wheeler markets, the report added. These funds are also fueling traditional Original Equipment Manufacturers (OEM) transition to EVs, aligning with the rising demand for sustainable transportation solutions.

Conclusion

India’s automobile industry is undergoing a major transformation towards electric mobility, driven by government support and rising consumer demand. While EV adoption is accelerating in two-wheelers and passenger vehicles, challenges remain in commercial vehicles and tractors. Looking forward, EV-related capital expenditure is expected to grow significantly, fuelled by private equity and government initiatives. This shift promises long-term growth and global competitiveness for the sector.

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