India’s Automobile Industry on Track to Hit $300 Billion by 2026, Driven by EV Boom and Policy Support

The Indian automobile industry is a critical pillar of the country’s economy and one of the fastest-growing global markets. By 2026, it is expected to reach a valuation of US$ 300 billion, driven by strong domestic demand, rising exports, policy support, and large-scale investments. The sector contributes 7.1% to India’s GDP and provides direct and indirect employment to nearly 19 million people.

Market Structure and Growth

The industry is segmented into two-wheelers, three-wheelers, passenger vehicles (PV), and commercial vehicles (CV), each dominated by a few established players. India is the world’s largest manufacturer of electric two- and three-wheelers (E2Ws and E3Ws). In FY25, sales included 19.6 million two-wheelers (up 9.1% YoY) and 4.3 million passenger vehicles. The PV segment is projected to cross five million units in FY26, supported by both domestic and export demand.

India’s automobile production reached 25.5 million units in FY25, while exports surged by 19% to 5.3 million units, led by two-wheelers, passenger cars, and CVs. The EV market is expanding rapidly, with over 2 million EVs sold in FY25. According to the India Energy Storage Alliance, the EV market is expected to grow at a 36% CAGR through 2026, while the EV battery market is forecast to expand at 30% CAGR.

Competitive Advantage

India’s strengths include a large middle-class population, cost advantages (10–25% lower operational costs vs. Europe/Latin America), and a growing reputation as a global R&D hub. Cumulative FDI inflows into the sector stood at US$ 37.5 billion between April 2000 and December 2024. Government initiatives like the Production-Linked Incentive (PLI) scheme, the PM E-DRIVE program (US$ 1.3 billion), and the FAME-III scheme (US$ 1.29 billion) are accelerating the adoption of EVs, charging infrastructure, and local manufacturing.

Key Industry Trends

1. Luxury Vehicles – Mercedes-Benz, BMW, and Audi continue to expand in India, with luxury car sales reaching 42,731 units in 2023.
2. Localized Models – Global automakers such as Kia, Volkswagen, and Toyota are adapting designs to meet Indian consumer needs. Toyota, for instance, launched the world’s first BS-VI Stage II ethanol-based flex-fuel Innova.
3. Financing Innovations – Automakers are partnering with banks and NBFCs to enhance access to credit, including flexible financing schemes and digital loan processing.
4. Electric Vehicles – India’s EV industry is expected to be worth US$ 18.3 billion by 2029, supported by major investments from domestic and foreign OEMs.

Strategies and Investments

Leading manufacturers are scaling up capacity and product offerings:

• Tata Motors filed a record 250 patents in FY25 and is investing in EV manufacturing and solar-powered charging infrastructure.
• Maruti Suzuki announced an ₹7,410 crore (US$ 864 million) investment for a new Haryana facility with 750,000-unit capacity.
• Mahindra & Mahindra plans to invest ₹26,000 crore (US$ 3.08 billion) in automotive operations by 2027, with ₹12,000 crore earmarked for EVs.
• Hyundai committed US$ 3.85 billion over a decade to strengthen EV and hydrogen R&D in India.
• Global brands like Renault-Nissan, Skoda, Mercedes-Benz, BYD, and VinFast have also announced large investments to expand manufacturing and EV portfolios.

Growth Drivers

• Policy support through AMP 2016–26, NATRIP, and the battery-swapping policy.
• Rising demand from a young population, growing disposable incomes, and expanding credit access.
• Infrastructure support, including charging stations, flex-fuel development, and ethanol blending (20% by 2025–26).
• High private and public investment, including IPOs (e.g., Ola Electric) and EV-focused projects across states.

Opportunities Ahead

India is positioning itself as a hub for small car manufacturing and low-cost exports, as well as a global R&D basewith increasing private-sector innovation. The EV ecosystem alone represents a US$ 200 billion investment opportunity by 2030 and is projected to create 50 million jobs.

Conclusion

India’s automobile industry stands at a transformative juncture. Backed by government incentives, rising consumer demand, and an aggressive shift towards electric mobility and sustainability, the sector is on track to become a global powerhouse by 2030. With a mix of domestic champions and global OEMs deepening their stakes in the market, India is poised to emerge not only as one of the largest markets but also as a critical innovation and manufacturing hub in the global automotive value chain.

Report Courtesy: India Brand Equity Foundation