Auto Sector in India: OEMs, Ancillaries, and the EV Transition

The four segments of the Indian auto industry

The Indian automobile industry is typically segmented by vehicle type, because the competitive dynamics, margin structure, and growth drivers of each segment are meaningfully different.

Passenger vehicles (PV)

Passenger vehicles — cars, SUVs, and vans — have historically been the highest-revenue segment for Indian OEMs, even though they are not the highest-volume segment by units. India overtook Japan to become the world's third-largest PV market by volume in calendar year 2022, with annual wholesale volumes broadly in the 4–4.5 million unit range in recent years. Maruti Suzuki has historically commanded the largest market share in PV, though Tata Motors and Hyundai India have gained ground consistently. The shift from hatchbacks and sedans toward SUVs is the dominant mix story of the past five years — SUVs moved from roughly 25% of PV sales to over 50% in the FY2023–24 period, and because SUVs carry a higher average selling price (ASP), this mix shift has been a meaningful driver of revenue per unit even during periods of flat volume growth.

Commercial vehicles (CV)

Commercial vehicles — trucks (medium and heavy commercial vehicles, MHCV) and light commercial vehicles (LCV) — are the most cyclical segment of Indian auto. CV demand is closely correlated with infrastructure activity, freight rates, and industrial capex. When road construction, mining, and logistics activity expand, freight operators place large orders for trucks and buses. When the economic cycle turns, operators defer replacement purchases and CV volumes fall sharply. Ashok Leyland and Tata Motors are the dominant players in MHCV trucks; Mahindra & Mahindra and Tata are strong in LCV. Bus volumes are significantly influenced by state government orders, which adds a procurement-cycle dimension. The regulatory transition from BS IV to BS VI emission norms (effective April 2020) caused large pre-buying and then a sharp volume hangover in FY2020–21.

Two-wheelers (2W)

Two-wheelers — motorcycles, scooters, and mopeds — represent the largest segment by unit volume in India and are the primary personal mobility product for the majority of households. Annual 2W wholesale volumes historically ranged between 15 and 21 million units, with the FY2020–21 pandemic year being the recent trough. Two-wheeler demand has a strong rural dependency — a meaningful portion of purchases are made by farmers and households in non-urban markets, making agricultural income and monsoon performance relevant leading indicators. Hero MotoCorp is the world's largest two-wheeler manufacturer by volume, predominantly in motorcycles. Bajaj Auto is the second-largest by volume domestically and is also the largest two-wheeler exporter from India. Honda Motorcycle & Scooter India (HMSI), TVS Motor Company, and Suzuki Motorcycle India are other significant players. Scooters have been gaining share versus motorcycles in urban markets due to convenience and, more recently, the rapid penetration of electric scooters.

Three-wheelers (3W)

Three-wheelers — auto-rickshaws and cargo three-wheelers — are a niche but economically important segment, particularly in urban passenger transport and last-mile logistics. Bajaj Auto and TVS Motor are the dominant manufacturers. The three-wheeler segment has become the earliest large-scale EV penetration story within Indian auto, primarily in the cargo variant, because the economics of battery swapping and short daily range requirements aligned with available battery technology earlier in the EV adoption curve.

OEM vs ancillary: two different business models

Understanding the structural difference between an OEM and an auto ancillary company is fundamental to analysing any auto sector equity.

An OEM designs the vehicle concept, manages the brand, assembles the final product, operates the dealer distribution network, and owns the customer relationship. The OEM bears the full fixed cost of an assembly plant but also captures the full revenue per vehicle sold. OEM EBITDA margins in India have historically ranged from roughly 8% to 14% for passenger vehicle companies, with Maruti Suzuki consistently at the higher end due to its scale and manufacturing efficiency.

An auto ancillary company makes one or more components that are assembled into vehicles. Their revenue is directly tied to OEM production volumes and their contracts are typically won through a competitive supplier qualification process. Pricing is often negotiated annually with the OEM, and OEMs systematically push for annual cost reductions (typically 2–4% per year) as part of the supplier relationship. This means ancillary companies must continuously reduce manufacturing costs or find offsetting volume growth to protect margins.

The ancillary segment in India is large and diverse. Motherson Sumi Wiring India is one of the largest wiring harness manufacturers. Bosch India manufactures fuel injection systems, aftermarket components, and electrical systems. Minda Industries (now Spark Minda) produces switches, horns, and lighting. Samvardhana Motherson International operates across mirrors, bumpers, and interior modules globally. These companies have different risk profiles — some are predominantly India-facing, others are global supply chain participants. The India-facing ones benefit from domestic volume growth but are exposed to model-specific concentration risk; the global ones benefit from diversification but carry forex and geopolitical risks.

Key metrics for auto sector analysis

Analysts tracking Indian auto companies typically focus on the following metrics, which are disclosed monthly (volumes) or quarterly (financials).

• Monthly wholesale volume: OEMs report wholesale dispatches to dealers every month to SIAM (Society of Indian Automobile Manufacturers). This is the primary leading indicator of revenue for the quarter. Retail sales (actual consumer purchases at dealerships) are separately tracked by FADA (Federation of Automobile Dealers Associations) and are the more direct measure of end demand.
• Average selling price (ASP): Revenue divided by units sold. Rising ASP can be driven by price increases, product mix shift toward higher-value variants, or regulatory cost pass-through (as happened with BS VI compliance costs). For two-wheelers, ASP has been rising as premium motorcycles and electric scooters take share from entry-level commuters.
• EBITDA margin: The key measure of operating leverage. In high-volume years, fixed cost absorption improves and EBITDA margins expand. In low-volume years, they compress. Commodity cost cycles layer an additional dimension — raw material costs as a percentage of net sales is a closely watched sub-metric.
• Market share by segment: Volume leadership matters in auto because scale drives procurement savings, R&D amortisation, and dealer network economics. Sustained market share gains or losses in a specific segment — say, SUVs or electric scooters — can compound into large revenue and profit differences over a three-to-five year horizon.
• Dealer inventory days: Measured in days of stock held at dealer level. High inventory at dealers signals slowing retail demand before it shows up in OEM wholesale figures.
• Export volumes: Some Indian OEMs (Bajaj Auto, Tata Motors, TVS Motor) derive meaningful revenue from exports. Export realisation can be higher or lower than domestic depending on the destination market and product mix.

Major players: who does what

Maruti Suzuki India

Maruti Suzuki has been India's largest passenger vehicle OEM by volume for decades, with a domestic market share that historically ranged between 40% and 50% of the PV segment. The company's competitive advantages historically included an unmatched dealer and service network (over 4,000 touchpoints across India), fuel-efficient small cars with low total cost of ownership, and procurement scale that kept input costs among the lowest in the industry. The shift in consumer preference toward SUVs was a challenge Maruti navigated with some lag — its entry into the mid-SUV segment with models like the Brezza and Grand Vitara came after rivals had established positions. The company was late to enter the electric vehicle space relative to peers.

Tata Motors

Tata Motors is a multi-segment OEM with domestic operations in passenger vehicles, commercial vehicles, and electric vehicles, plus the internationally significant Jaguar Land Rover (JLR) business acquired in 2008. The JLR acquisition made Tata Motors' consolidated P&L significantly dependent on JLR's performance, which in turn is exposed to UK manufacturing economics, European luxury demand, and China sales — making the standalone India and consolidated stories quite different. Domestically, Tata Motors achieved significant gains in both PV market share (Nexon, Punch, Harrier) and in EV market share, with the Nexon EV historically being the best-selling electric passenger car in India. Tata Motors was also the leader in EV-ready CVs for public transport buses through its large-scale orders under the PM e-Bus Sewa scheme.

Mahindra & Mahindra (M&M)

M&M is the dominant player in SUVs and utility vehicles in India, with the Scorpio and Bolero historically underpinning its volumes and newer models (XUV700, Thar, BE series) expanding into urban premium segments. M&M also has a meaningful presence in farm equipment (tractors), which diversifies its revenue base. The company announced significant investments in EV development, with a dedicated EV platform and battery pack manufacturing targeted for the mid-2020s. M&M's tractor division historically made it less exposed-than-peers to urban demand cycles.

Bajaj Auto and Hero MotoCorp

Bajaj Auto and Hero MotoCorp are the two dominant players in Indian two-wheelers by volume, with fundamentally different strategies. Hero MotoCorp is the volume leader, primarily in entry-level and mid-segment motorcycles serving rural and semi-urban markets. Bajaj Auto has focused more on premium motorcycles (Pulsar, Dominar), three- wheelers, and exports — with exports historically accounting for roughly 35–40% of total volumes, making it the largest two-wheeler exporter from India. Bajaj Auto also held a strategic stake in KTM (Austria-based premium motorcycle brand) and Piaggio India, diversifying its exposure.

Eicher Motors and Ashok Leyland

Eicher Motors is the holding company of Royal Enfield, the mid-weight premium motorcycle brand that historically dominated the 250cc–750cc segment with very high margins relative to mass-market peers. Eicher also holds a joint venture stake in VE Commercial Vehicles (VECV, with Volvo Group). Ashok Leyland is India's second-largest MHCV manufacturer, with significant exposure to bus orders from state transport undertakings.

The EV disruption: what has happened so far

The electric vehicle transition in India has been uneven across segments, moving fastest in two-wheelers and three-wheelers and more slowly in four-wheelers.

In electric passenger vehicles, Tata Motors established an early lead with the Nexon EV, which historically accounted for the majority of EV PV sales in India from its launch through 2023. The total EV penetration in PV remained in the low-single-digit percentage range of total PV sales as of FY2024–25 — meaningful directionally but not yet a majority share. Charging infrastructure constraints and purchase price premiums over comparable ICE models were the two structural barriers most frequently cited.

In electric two-wheelers, the market developed rapidly but turbulently. Ola Electric became the largest electric two-wheeler seller in India by volume in FY2023–24, disrupting incumbents like Hero MotoCorp and Bajaj Auto. However, the electric two-wheeler segment also saw significant quality and after-sales service challenges from multiple manufacturers, and the FAME II subsidy compliance controversy in 2022–23 caused regulatory uncertainty for several quarters. Battery costs — which had historically been the primary driver of EV price premiums over ICE equivalents — had been declining, with lithium-ion pack costs globally observed falling from above $200/kWh in the mid-2010s to roughly $100–130/kWh by 2023–24, though India-specific costs were higher due to import dependence on cell manufacturing.

The battery supply chain is the most critical structural dependency for Indian EV ambitions. India had minimal lithium-ion cell manufacturing capacity as of 2024, making it dependent on imports from China, South Korea, and Japan. Several PLI-backed battery manufacturing projects were announced, with Ola Electric, Amara Raja, and Exide Industries among those that announced or commenced cell manufacturing investments.

The FAME subsidy history

FAME I (2015) was a modest pilot scheme that tested demand incentive mechanisms. FAME II (2019, outlay approximately ₹10,000 crore) was the first large-scale scheme and defined the incentive structure as ₹15,000 per kWh of battery capacity for electric two-wheelers (up to 40% of vehicle cost), with localisation requirements for components. The localisation conditions became contentious in 2022–23 when investigations found several manufacturers had claimed FAME II subsidies without meeting required domestic content thresholds. Subsidies were clawed back from multiple companies, and the scheme was tightened. FAME II effectively wound down by early 2024. The PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme was announced as a successor in 2024, with revised subsidy structures and enhanced localisation requirements.

PLI scheme for automobile and auto components

The Production-Linked Incentive (PLI) scheme for automobiles and auto components, approved in September 2021 with a budgeted outlay of approximately ₹25,938 crore over five years, covered two categories: Champion OEM Incentive Scheme (for OEMs manufacturing advanced automotive technology vehicles) and Component Champion Incentive Scheme (for component manufacturers). The scheme was designed to incentivise domestic manufacturing of EVs, fuel cell vehicles, and advanced internal combustion technology components by linking incentive payments to incremental domestic sales above a base year threshold. The intent was to attract global and domestic players to invest in manufacturing scale in India.

Commodity input costs and their impact on margins

The auto sector is one of the most materials-intensive manufacturing sectors in India. For a typical passenger vehicle OEM, raw materials account for 60–75% of net sales. The major inputs are:

• Steel: Used in body panels, chassis, and structural components. Hot-rolled coil (HRC) prices are the most commonly cited benchmark. Indian OEMs source significantly from domestic steel producers (Tata Steel, JSW Steel, SAIL), which provides some buffer against global price swings, but Indian prices broadly tracked global trends. The steel price surge in FY2021–22 was a major EBITDA headwind for most OEMs.
• Aluminium: Increasingly used in powertrain components, wheels, and, in premium vehicles, body panels. Aluminium intensity per vehicle has been rising as OEMs reduce weight.
• Rubber: Used in tyres (largely a pass-through to tyre companies as a separate supply chain), engine mounts, seals, and hoses. Natural rubber prices are influenced by Southeast Asian crop yields and global demand.
• Precious metals (palladium, platinum, rhodium):Used in catalytic converters for BS VI-compliant ICE vehicles. These are imported and priced in USD, making them subject to both commodity price risk and forex risk. EV transition reduces this input cost category.
• Copper: Used in wiring harnesses. EV vehicles use significantly more copper than ICE vehicles due to battery wiring and motor windings.

OEMs typically hedge some portion of commodity exposure through forward contracts and by building cost-reduction programs into their supplier contracts. During commodity super-cycles, the lag between input cost increases and the ability to take price increases in the market causes temporary margin compression.

Export markets

India has emerged as an important auto export hub for specific segments. Two-wheeler exports — primarily Bajaj Auto, TVS Motor, and Hero MotoCorp — are directed to Africa, Latin America, and Southeast Asia. These markets typically require simpler, more affordable models than the domestic premium segments, and are sensitive to currency volatility in destination markets (many African and Latin American currencies went through significant depreciation cycles in recent years, compressing realisation). Tata Motors exports some commercial vehicles to SAARC markets and Africa. Maruti exports to a range of markets but India-made cars historically competed at the lower-price end of export markets.

The auto ancillary segment in depth

Auto ancillary companies in India span a wide range of scale and sophistication:

• Motherson Sumi Wiring India (MSWIL):India's largest wiring harness manufacturer, spun off from Samvardhana Motherson International to give investors a pure-play India exposure. Wiring harnesses are among the most labour-intensive auto components and are difficult to automate fully, which is why they continue to be manufactured in India for domestic OEM supply rather than being offshored.
• Bosch India: The Indian listed subsidiary of Robert Bosch GmbH manufactures fuel injection systems, starter motors, alternators, and a broad range of automotive and industrial components. Bosch India also has a significant aftermarket parts business, which gives it a less cyclical revenue stream compared to pure OEM suppliers.
• Minda Industries / Spark Minda: Manufactures automotive switches, horns, alloy wheels, sensors, and safety systems. The company has been expanding into EVspecific components (BMS, charging connectors) as the product portfolio mix shifts.
• Samvardhana Motherson International: The global parent operates across wiring harnesses, vision systems (mirrors), bumpers, and interior plastic modules for global OEMs. Its revenue base is predominantly international, making it a proxy for global auto production rather than specifically Indian volume trends.

When analysing ancillary companies, an important distinction is between Tier 1 suppliers (direct OEM suppliers) andTier 2/3 suppliers (suppliers to Tier 1 companies). Tier 1 suppliers have direct relationships with OEMs and manage their own sub-supplier networks. Tier 2 and below are smaller, less visible companies. Most listed Indian ancillary companies are at the Tier 1 level.

The auto cycle: reading the demand signals

The auto sector is cyclical, but different sub-segments follow different cycles. Two-wheeler demand has historically been more correlated with rural income and fuel prices. PV demand tracks urban income, financing availability (EMI rates from NBFCs and banks), and consumer confidence. CV demand follows the capex and infrastructure cycle, with MHCV trucks being among the most cyclical sub-segments in Indian manufacturing.

An important nuance is the replacement cycle: vehicles are durables with a usable life of 10–20 years depending on segment. When discretionary income is under stress, consumers postpone replacement purchases, compressing volumes. When income and confidence recover, pent-up demand drives a sharp volume recovery. This pattern was clearly visible in the two-wheeler segment, which saw several years of below-peak volumes in FY2019–20 through FY2021–22 before recovering.

For investors analysing auto sector stocks, understanding where the sub-segment cycle stands — early recovery, peak, or contraction — is at least as important as understanding company-specific fundamentals, because even the best-managed OEM cannot grow volumes in a contracting demand environment.

Nifty 500 companies in the auto sector

The Nifty 500 includes both OEMs and major ancillary companies across the auto value chain. To see all auto sector companies with their financial profiles and shareholding data, visit the Auto sector stocks on EquitiesIndia.com.

This article is educational only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. All references to companies, data, and market conditions describe historical observations and are illustrative in nature. Past performance and historical patterns are not indicative of future results. Stock markets carry risk, including the loss of principal. Please consult a SEBI-registered investment adviser before making any investment decision.