India’s automobile industry is a tale of strange mixture. With soaring sales, strategic policies, and a steady push toward localisation, the sector has become a hub for automotive assembly. Yet, challenges like declining foreign direct investment (FDI) inflows and reliance on imported components persist. Drawing on insights from analyses of debt-driven growth and the kit-and-assemble model, this article explores India’s automotive journey—blending assembly dominance, investment dynamics, and sales into a complicated story of untold truths.
Assembly vs. Manufacturing: The Core Of India’s Auto Sector
India’s auto industry primarily relies on assembling Completely Knocked Down (CKD) or Semi-Knocked Down (SKD) kits imported from global suppliers. This cost-efficient model offers modest domestic value addition (DVA) compared to full manufacturing, which emphasises end-to-end local production. From 2014 to 2025, localisation surged from 50-60% to an impressive 70-80%, driven by the “Make in India” initiative. However, the sector’s manufacturing GDP share remains steady at 13-17%, with a slight dip by 2025. High-value components, particularly electronics (80-90% imported), highlight gaps in self-reliance. The Production Linked Incentive (PLI) scheme, launched in 2021, has injected INR 20-30 billion (USD 227-341 million) by 2025, boosting electric vehicle (EV) localisation beyond 50% DVA in models from Tata and MG, though broader segments trail.
Surging Sales Amid Economic Challenges
Defying global headwinds, India’s auto sales have maintained strong momentum. Passenger vehicles grew 8.45% year-over-year (YoY) in FY 2024 to 4.22 million units, moderating to 1.97% in FY 2025 (projected at 4.30 million). Two-wheelers outperformed, climbing 13.31% to 17.97 million units in FY 2024 and 9.08% in FY 2025 (forecasted at 19.61 million). Despite monthly slowdowns in 2025 due to market saturation, consumer demand remains robust. Debt fuels this growth, financing 75-80% of four-wheeler purchases (up 5-7% since 2023) and 50-60% of two-wheelers, with outstanding auto loans reaching INR 4,400-5,280 billion by 2025. While defaults remain low at 2-3%, rising household debt (42% of GDP) raises caution. Heavy reliance on China for 80-90% of electronics imports (USD 113-127 billion in 2024) further exposes trade vulnerabilities.
Why Assembly Dominates In 2025
Assembly remains the sector’s backbone due to supply chain efficiencies. Importing high-value components like electronics and batteries reduces costs by 5-10% compared to global peers, making CKD/SKD models attractive. Low net FDI (under 1% of GDP) limits technology transfers for advanced manufacturing, and while PLI incentives have transformed EVs, they haven’t fully permeated other segments. Global pressures—such as US tariffs from August 2025, visa restrictions, and geopolitical tensions—deter deeper investments, reinforcing assembly as a low-risk, high-reward strategy for foreign firms targeting India’s vast market.
Investment Dynamics: FDI, OFDI, And FII Trends (2010-2025)
(a) Strategic Partnerships Power Growth: Joint ventures (JVs) and collaborations have been instrumental, driving technology transfers and market expansion. Key examples include Maruti Suzuki (Suzuki Japan, 56.4% stake), Toyota Kirloskar (Toyota Japan, 89%), Hero MotoCorp (independent post-2010 Honda split via a $1.2 billion stake sale), JSW-SAIC (2024 JV for MG, with JSW India at 35% and SAIC China at 49%), and Hyundai Motor India (fully Korean-owned with local vendor ties). These partnerships underscore India’s appeal as an assembly and EV hub.
(b) Trade And Investment Landscape: Imports of critical components (60% from China, Japan, Germany) grew from $8.5 billion in 2010 to $22.4 billion in 2025, while vehicle and parts exports rose from $5 billion to $22.9 billion ($15 billion in finished vehicles, $7.9 billion in spares), targeting Europe and Africa. A trade surplus emerged post-2020, reaching $0.5 billion in 2025. Cumulative FDI in automobiles hit $37.52 billion from April 2000 to December 2024, with Japan ($10 billion), South Korea ($8 billion), and the US/Germany ($5 billion) leading from 2010-2025. However, net FDI plummeted to USD 353 million (0.01% of GDP) in FY 2024-25, a 98% drop, driven by repatriations and global frictions.
Year-Wise Trends (2010-2025)
The table below tracks assembly reliance (imported content as % of production value), FDI inflows, Outward FDI (OFDI), and net FDI. Localisation gains, driven by PLI and free trade agreements (FTAs), reduced assembly reliance from 60% in 2010 to 30% by 2025. OFDI, estimated at 5-7% of India’s total outward investments, reflects global expansions by Tata and Mahindra. Net FDI = FDI Inflows – OFDI. Values in USD billion; % changes YoY.
| Year | Assembly Reliance % | % Change | FDI Inflows | % Change | OFDI (Est.) | % Change | Net FDI (Est.) | % Change |
|---|---|---|---|---|---|---|---|---|
| 2010 | 60 | – | 1.3 | – | 0.3 | – | 1.0 | – |
| 2011 | 58 | -3.3 | 0.9 | -30.8 | 0.3 | 0 | 0.6 | -40.0 |
| 2012 | 56 | -3.4 | 1.5 | +66.7 | 0.4 | +33.3 | 1.1 | +83.3 |
| 2013 | 54 | -3.6 | 1.5 | 0 | 0.4 | 0 | 1.1 | 0 |
| 2014 | 52 | -3.7 | 2.7 | +80.0 | 0.5 | +25.0 | 2.2 | +100.0 |
| 2015 | 50 | -3.8 | 2.5 | -7.4 | 0.5 | 0 | 2.0 | -9.1 |
| 2016 | 48 | -4.0 | 1.6 | -36.0 | 0.6 | +20.0 | 1.0 | -50.0 |
| 2017 | 46 | -4.2 | 2.1 | +31.3 | 0.7 | +16.7 | 1.4 | +40.0 |
| 2018 | 44 | -4.3 | 2.6 | +23.8 | 0.8 | +14.3 | 1.8 | +28.6 |
| 2019 | 42 | -4.5 | 2.8 | +7.7 | 0.9 | +12.5 | 1.9 | +5.6 |
| 2020 | 40 | -4.8 | 2.6 | -7.1 | 0.8 | -11.1 | 1.8 | -5.3 |
| 2021 | 38 | -5.0 | 7.0 | +169.2 | 1.0 | +25.0 | 6.0 | +233.3 |
| 2022 | 36 | -5.3 | 2.0 | -71.4 | 1.1 | +10.0 | 0.9 | -85.0 |
| 2023 | 34 | -5.6 | 2.7 | +35.0 | 1.2 | +9.1 | 1.5 | +66.7 |
| 2024 | 32 | -5.9 | 1.9 | -29.6 | 1.0 | -16.7 | 0.9 | -40.0 |
| 2025 | 30 | -6.3 | 3.0 | +57.9 | 1.75 | +75.0 | 1.25 | +38.9 |
Notes: Localisation rose to ~70% by 2025, driven by PLI and FTAs. OFDI spikes (e.g., $4.4 billion to the US in FY 2024-25) reflect global ambitions. The 2021 FDI peak tied to EV investments; 2025 inflows (5% of $50.01 billion total equity FDI) prioritized assembly and EV tech.
FII Volatility In Auto Stocks (2014-2025)
Foreign Institutional Investors (FIIs) have shaped auto stock valuations, with flows tied to global cues, sales trends, and EV policies. Targeting giants like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra, FIIs contributed to +$95 billion in cumulative equity inflows from 2014-2025, with autos claiming 5-10% in bullish periods. The table below estimates net FII flows to the auto sector. Values in USD billion; % changes YoY.
| Year | Net FII Inflows (Est.) | % Change |
|---|---|---|
| 2014 | 1.0 | – |
| 2015 | 0.3 | -70.0 |
| 2016 | -0.2 | -166.7 |
| 2017 | 0.6 | +400.0 |
| 2018 | -0.3 | -150.0 |
| 2019 | 1.0 | +433.3 |
| 2020 | 2.0 | +100.0 |
| 2021 | -0.1 | -105.0 |
| 2022 | -1.0 | -900.0 |
| 2023 | 1.5 | +250.0 |
| 2024 | 1.5 | 0 |
| 2025 | -0.75 | -150.0 |
Notes: Surges in 2019-2020 reflected recovery and EV optimism; 2022 outflows tied to global uncertainties; 2025’s net negative (~$0.5-1 billion) stemmed from $13-15 billion overall outflows by August, with selective inflows (e.g., Rs 1,908 crore in September for EV stocks).
Future Of India’s Auto Sector
India’s automotive industry stands at a critical juncture, balancing impressive localisation gains with persistent structural challenges. Robust sales—4.3 million passenger vehicles and 19.61 million two-wheelers projected for FY 2025—signal strong consumer demand, underpinned by debt-driven financing.
However, reliance on imported high-value components, especially 80-90% of electronics from China, exposes vulnerabilities in self-reliance. Declining net FDI (USD 353 million in FY 2024-25) and volatile FII flows (net outflows of USD 0.75 billion in 2025) reflect global economic frictions and limited technology transfers, constraining full-scale manufacturing.
Looking ahead, India’s auto sector must navigate a dual path: establishing real and effective local manufacturing to reduce import dependency and attracting sustained investments to ensure continued manufacturing progress.
Strategic partnerships, like JSW-SAIC and Hyundai’s local vendor ties, will remain pivotal for technology integration and market expansion. The EV segment offers a bright spot, with over 50% DVA in models from Tata and MG, but scaling this across broader segments requires policy consistency and infrastructure growth.
Rising household debt (42% of GDP) and geopolitical risks, including US tariffs and visa restrictions, demand cautious optimism. By leveraging its assembly strengths, expanding export markets (USD 22.9 billion in 2025), and fostering innovation, India’s auto industry can evolve from an assembly-driven model to a manufacturing powerhouse, driving sustainable growth in a dynamic global landscape.