India’s Auto Story: From Three Wheels to Global Wheels

For decades, India’s streets were ruled by three-wheelers. The iconic yellow-andgreen auto rickshaws carried thousands each day, skillfully navigating the country’s crowded lanes. Visitors often marvelled at the chaotic symphony of horns, engines, and human energy. For ordinary Indians, these rickshaws were more than vehicles, they represented mobility, livelihood, and affordable transportation in a country where private car ownership was once a distant dream. Fast forward to today, and the picture is radically different. From sleek sedans cruising past traffic lights to SUVs and electric vehicles silently moving through city roads, India has emerged as a global automotive powerhouse. [EasyDNNnews:PaidContentStart]

Recently, Union Minister Nitin Gadkari highlighted that India’s automobile industry has now grown to a size of ₹22 lakh crore. He emphasized that the collective mission is to position this sector as the world’s number one within the next five years. This transformation is not just about the vehicles we see; it is about economic growth, policy reforms, consumer aspirations, industrial capabilities, and technological innovation converging over decades. Let’s explore how India’s automotive journey has unfolded, the opportunities it has created for investors, and the potential rewards that lie ahead, offering readers valuable insights into the country’s auto ambitions and key areas to capitalize on. 

The Era of Three Wheels
In the decades following independence, India’s passenger car market was tiny. The roads belonged to a few models: the Ambassador from Hindustan Motors, the Premier Padmini, and a handful of imported vehicles. Owning a car was a luxury limited to government officials, industrialists, and a privileged elite. Waiting lists stretched for months, sometimes even years, and high tariffs and import restrictions kept options limited. In this environment, three-wheelers were the lifeblood of urban transport. Compact, affordable, and perfect for navigating India’s narrow lanes, auto rickshaws became ubiquitous. 

Companies like Bajaj Auto and Piaggio recognized the demand and produced vehicles tailored for Indian roads. The auto rickshaw was more than a workhorse; it was a symbol of practicality and an entry point into the motorized world for millions of Indians. Two-wheelers also played a role in democratizing mobility. Scooters from Bajaj, Rajdoot and TVS became aspirational yet achievable modes of transport for middle-class families. Together, two-wheelers and auto rickshaws shaped the image of India as a nation of small, agile vehicles. 

1991 and the Rise of the Car Market
The early 1990s proved to be a watershed moment with the launch of India’s economic liberalisation in 1991. Economic liberalisation refers to the process of opening up a country’s economy by reducing government restrictions and encouraging private enterprise, competition, and foreign investment. In India, the landmark 1991 reforms cut trade barriers, deregulated industries, and eased foreign investment rules, shifting the country from a tightly controlled, socialist model to a market-driven economy that spurred growth and globalization. For the automobile industry, this was 

transformative. Maruti Suzuki, which had entered India in the 1980s through a partnership with the government, became a poster child of this new era. 

The Maruti 800 was affordable, reliable, and easy to maintain. Suddenly, car ownership was within reach for millions of middle-class families. Hyundai, Honda, Toyota, Ford, and others followed, setting up manufacturing plants, introducing global standards, and expanding consumer choices. This era also saw a boom in vehicle financing. Banks and financial institutions began offering car loans to middle-class buyers, lowering the barrier to entry and fuelling demand. The streets began to change as hatchbacks, sedans, and later, compact SUVs entered the urban landscape. 

From Needs to Wants: The Aspiration Shift
Economic growth in India brought with it a visible shift in consumer aspirations. A car was no longer seen as just a convenient way to get from one place to another. It began to represent freedom, comfort, and upward mobility. Owning a car signalled independence and carried with it a certain social prestige that resonated strongly with the emerging middle class. Urbanization added further momentum to this shift. As more families migrated to cities in search of better opportunities, the need for dependable personal transport grew rapidly. The market diversified accordingly. Hatchbacks became the preferred choice of young professionals seeking affordability and efficiency. 

Sedans were embraced by families desiring extra space and comfort. SUVs started to dominate highways, driven by buyers who equated size and style with status. Automakers were quick to recognize and cater to these evolving preferences. Maruti Suzuki moved beyond its iconic Maruti 800 to introduce popular models such as the Swift, Baleno, and Vitara Brezza. Tata Motors expanded from utilitarian sedans to stylish SUVs like the Nexon, Harrier, and Punch. Mahindra carved its niche in the SUV and commercial vehicle space. With a growing range of options, consumer aspirations became the driving force behind product innovation. 

The Ancillary Advantage
The rapid growth of vehicles in India would not have been possible without the simultaneous rise of the automotive component sector. Companies such as Motherson Sumi Systems, Bharat Forge, Bosch India, and Sundram Fasteners played a vital role in this transformation. They not only supplied high-quality parts to domestic manufacturers but also earned global recognition as exporters of world-class components. This strong ecosystem created a powerful multiplier effect. With dependable supply chains in place, automakers could scale up production with greater efficiency and confidence. 

India soon emerged as an attractive destination for global carmakers, offering the dual advantage of cost-competitive manufacturing and a skilled workforce. The ancillary industry thrived, and investors began to see the sector’s depth extended far beyond vehicle sales alone. At the same time, exports started to gather momentum. Indian-made cars, commercial vehicles, and two-wheelers gradually found their way to markets in Europe, Africa, and Asia. What was once largely a consumption-driven market was now steadily transforming into a hub of production and global exports, reshaping India’s image in the global automotive landscape. 

Government Action: Steering the Industry Forward
The rise of India’s automobile industry has not been accidental. It is deeply rooted in policy support, sustained reforms, and the government’s willingness to channel capital into infrastructure and mobility. Over the last three decades, policy direction has consistently aimed at turning India into a global auto hub. The 1991 economic liberalisation set the stage by opening the industry to foreign investment. Global automakers entered through joint ventures and later set up wholly owned subsidiaries. The government further strengthened the sector with the Auto Policy of 2002, which emphasized technology, exports, and global competitiveness. 

More recently, initiatives such as the Automotive Mission Plan (AMP 2016-26) have sought to position India among the top three automotive manufacturing centres in the world. The government actively encouraged foreign investment in the automobile sector by allowing 100 per cent Foreign Direct Investment (FDI) under the automatic route, thereby easing entry for global players and boosting technology transfer, capital inflows, and job creation. Capital expenditure from both the state and industry has been substantial. The government’s focus on expanding highways, expressways, and Logistics networks under programs like Bharatmala and Gati Shakti improved connectivity, directly boosting vehicle demand. 

On the manufacturing side, policies like Make in India and the Production Linked Incentive (PLI) scheme for Advanced Automotive Technology (AAT) have encouraged automakers and component suppliers to invest in capacity and innovation. Several global players, from Suzuki to Hyundai, have expanded plants, while Indian companies like Tata Motors and Mahindra have scaled their production bases. Growth has also been fuelled by specific reforms targeting clean and sustainable mobility. The government has rolled out the PM E-DRIVE scheme with an allocation of `10,900 crore. 

The FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme provided incentives for electric vehicles, while stricter emission standards nudged the industry toward cleaner technologies. Beyond government push, several structural factors played a role. Rising incomes, urbanisation, and an expanding aspirational middle class created consistent demand. Financing availability improved accessibility, while rural road expansion opened up new markets for two-wheelers and tractors. Taken together, reforms, capex, and supportive policies created an enabling environment. 

Tax Cuts, Wheels in Motion
On September 22, 2025, India implemented a significant overhaul of its Goods and Services Tax (GST) structure, reducing tax rates on automobiles and thereby making car ownership more accessible to a broader segment of the population. The revised GST framework eliminated the previous four-tier tax system, introducing simplified slabs of 5 per cent for essential items and 18 per cent for most goods and services. The GST rate for small cars and motorcycles below 350cc has been reduced from 28 per cent to 18 per cent. This change effectively lowered the tax burden on entry-level vehicles, resulting in price reductions of up to ₹1.2 lakh on several models. 

These adjustments have not only made cars more affordable but also stimulated consumer demand, leading to increased footfall and bookings at showrooms across the country. The GST reduction is expected to bolster the automotive sector's growth by encouraging the replacement of older vehicles with newer, more fuel-efficient models, thereby supporting cleaner mobility. The policy change also promotes domestic manufacturing and aligns with the government's ‘Make in India’ initiative, potentially attracting new investments and enhancing the sector's competitiveness on a global scale. Overall, the recent GST reforms have created a favourable environment for both consumers and manufacturers, fostering a more vibrant and sustainable automotive market in India. 

Affordable Rides Ahead
Following the GST rate cut on automobiles, several leading automakers in India swiftly reduced prices across their popular models to pass on the benefit to consumers. Maruti Suzuki announced price reductions of up to ₹1.3 lakh on select entry-level cars, making its best-selling models more accessible. Hyundai followed with cuts of up to ₹2.4 lakh, while Tata Motors slashed prices on models such as the Tiago, Punch, and Nexon by between ₹1-2 lakh. Mahindra & Mahindra also reduced prices on its entry-level SUVs and commuter models, offering relief of up to ₹1.5 lakh. Two-wheeler makers such as Hero MotoCorp, Bajaj Auto, and TVS Motor announced price reductions on motorcycles below 350cc, with cuts ranging from around ₹8,000 to ₹14,000, depending on the model. 

Record Single-Day Sales
As Navratri began, immediately after the 15-day Shradh period when new purchases are usually minimal, the dual impact of lower GST rates and festive season demand provided a strong lift to passenger car makers. Maruti Suzuki is estimated to have delivered nearly 30,000 vehicles, while Hyundai reported wholesales of around 11,000 units. Companies logged their best single-day sales in years, driven by a surge in festive bookings and consumer enthusiasm, and this momentum is expected to continue through the Diwali season and beyond, supported by pent-up demand and attractive pricing. 

According to a Nuvama report, the passenger vehicle (PV) segment is likely to continue its growth momentum and stay on an upward trajectory through FY29. The brokerage highlighted that PV volumes, which bottomed out in FY21, are currently in the mid-to-advanced phase of their upcycle. Based on historical trends, such cycles typically last six to eight years, suggesting that the ongoing uptrend could extend until FY27-29. 

Driving Through Challenges
While the recent surge in sales is encouraging, it comes after a period of subdued auto demand in India. Over the past few months, vehicle sales had slowed due to multiple headwinds. One of the key headwinds is financing costs. With interest rates remaining elevated, auto loans have become more expensive, limiting affordability for first-time buyers and small car purchasers. Higher insurance premiums and rising fuel prices further increase the total cost of ownership, dampening consumer enthusiasm for new vehicles. 

This issue appears to be easing following the recent reduction in interest rates. Supply chain disruptions have also been a persistent challenge. Semiconductor shortages, which slowed production globally, have affected the timely delivery of popular models in India. Logistics bottlenecks, fluctuating raw material costs, and intermittent manufacturing slowdowns have occasionally constrained production, reducing inventory at showrooms and delaying bookings. However, the industry and government have taken proactive steps to ease these bottlenecks. 

Investments in domestic semiconductor manufacturing, improved port and logistics infrastructure, and strategic sourcing of raw materials are gradually strengthening supply chains. As a result, production schedules are stabilizing, inventories are improving at showrooms, and consumers can expect more timely deliveries in the coming months. Regulatory pressures add another layer of complexity. Stricter safety regulations, and evolving Electric Vehicles (EV) policies, while beneficial for sustainability, can increase production costs and affect margins. 

Companies need to invest significantly in research and development, technology upgrades, and compliance measures, which may strain smaller players in particular. On the macroeconomic front, global uncertainties such as geopolitical tensions, inflationary pressures, and slower growth in key export markets pose potential risks for vehicle exports and investment flows. Additionally, the shift toward electric mobility introduces challenges around charging infrastructure, battery availability, and consumer acceptance. Finally, market competition is intensifying. 

With both domestic and foreign automakers expanding lineups across hatchbacks, sedans, SUVs, and EVs, consumer expectations are higher than ever. Companies that fail to balance pricing, innovation, and quality may struggle to maintain market share. Navigating these challenges requires a careful mix of strategic investment, technological adoption, and policy support. While risks remain, experts believe that India’s growing middle class, government incentives, and gradual recovery in demand could help the sector sustain momentum. 

Sector’s Financial Checkpoint
To provide a holistic perspective on the sector’s performance, we analysed all constituents of the BSE Auto Index, encompassing both automobile manufacturers and auto component makers. The review highlights strong revenue and profit growth among automakers, while most auto ancillary companies reported only modest revenue gains alongside notable double-digit profit declines. The divergence in performance can be attributed to a mix of demand dynamics, pricing power, and cost pressures. Automakers have benefited from strong consumer demand across passenger vehicles, two-wheelers, and commercial vehicles, aided by favourable financing conditions and improving supply chain availability. 

Additionally, the implementation of scrappage policies, new product launches, and the transition toward EVs have further boosted sales momentum. With their ability to pass on input cost increases through price hikes, automakers have managed to sustain healthy margins, translating into robust revenue and profit growth. In contrast, auto ancillary companies have faced challenges despite the overall sectoral recovery. While their revenues grew modestly in line with vehicle production volumes, profitability took a significant hit due to rising raw material costs, currency fluctuations, and pricing pressure from original equipment manufacturers (OEMs). 

Unlike automakers, ancillary firms often lack the same pricing flexibility and must absorb higher input costs, leading to double-digit profit declines. Slower recovery in export markets and uneven demand across product categories added to the pressure. Another major factor has been the weakness in the replacement segment. Slower offtake in this space has been driven by extended replacement cycles, reduced freight activity, and a decline in rural demand. While the ancillary segment is currently grappling with slower growth and margin pressures, its long-term prospects remain encouraging. 

As automakers ramp up production to meet rising demand, the spillover benefits will naturally flow to component suppliers. The government’s push for localization, the Production-Linked Incentive (PLI) scheme for advanced automotive components, and increasing investments in EV-specific parts such as batteries, motors, and power electronics are likely to open new growth avenues. Moreover, as global supply chains diversify, Indian ancillary firms stand to gain from stronger export opportunities. 

It is also worth noting that the aggregate figures would have been notably higher if not for the drag from Tata Motors Ltd., which contributed more than one-third of the sector’s total profits in Q1FY25. The company reported a sharp 62 per cent year-on-year decline in net profit in Q1FY26, primarily due to the absence of a large exceptional gain of around `4,900 crore 

recorded in Q1FY25 that had significantly boosted profitability. Without a similar one-time gain in Q1FY26 and considering the higher base effect, overall profitability came under pressure, skewing the broader sectoral performance. 

Similarly, Apollo Tyres reported a steep 95 per cent year-onyear drop in net profit, largely driven by a ₹370 crore one-time expense related to the planned closure of its manufacturing plant in the Netherlands. Although the quarter began with intense heatwaves and early monsoon disruptions that weighed on sales momentum, the sector still managed to fare better than expected in a pre-rate-cut environment. With GST reductions now in place and the festive season set to drive demand, the performance in the coming quarters is likely to see a significant boost. 

Gears of Wealth
Last year was challenging for Indian markets, with benchmark indices BSE Sensex and Nifty 50 plunging nearly 15 per cent from the record highs they had reached in September 2024. While short-term rallies offered intermittent relief, those levels were never fully regained, keeping investor confidence in check. Macroeconomic conditions, however, have improved significantly. Inflation is within the RBI’s target range, repo rates have been eased, manufacturing output is rising, and GDP projections are encouraging. 

Yet, some sectors are still struggling to reflect this optimism. In contrast, the auto sector has emerged as a clear investor favourite. The BSE Auto Index surged nearly 40 per cent in less than six months from its notable low in April 2025. This rally was mirrored in individual stocks, with almost all constituents, except a handful, posting significant double-digit returns over the past six months. Performance over one and three-month periods also remained strong, underlining the sector’s sustained momentum. 

Over the last five years, several auto stocks have delivered triple-digit returns, dramatically multiplying investor wealth and demonstrating the sector’s long-term growth potential. Given this structural strength and the sector’s future growth trajectory, it is crucial for investors to explore ways to capitalize on these long-term, structurally driven opportunities. Let’s dive in. 

How Investors Can Ride the Auto Growth
Direct Equity Investment —
One of the most straightforward ways for investors to benefit from the auto boom is by investing directly in listed automobile companies. Leading players offer exposure to different segments, from compact cars and SUVs to two-wheelers and commercial vehicles. Investors can look for companies with strong balance sheets, consistent revenue growth, and a healthy Order Book. Additionally, ancillary companies, which form the backbone of the sector, provide another attractive avenue. Auto ancillary companies not only supply components to domestic manufacturers but also export globally. These companies often benefit from higher margins during industry upcycles, and investing in them can offer indirect exposure to the broader auto sector. 

Sectoral and Thematic Investing — For investors who prefer a broader sectoral play, sectoral ETFs (Exchange Traded Funds) or thematic funds focusing on automobiles and auto components can be a convenient route. These funds pool capital across multiple auto and ancillary stocks, reducing the risk of single-stock exposure while providing diversified access to industry growth. Thematic investing can also be extended to emerging trends within the sector, such as electric vehicles (EVs), green mobility, and autonomous technologies. 

Companies involved in EV manufacturing, battery technology, charging infrastructure, and supporting software solutions can provide early exposure to a segment likely to see exponential growth over the next decade. Retail investors can explore funds that invest in quality EV companies trading at fair valuations to make the most of this opportunity. 

Mutual Funds with Auto Exposure — For those seeking professional management of their investments, Mutual Funds are a practical option. Several diversified Equity Funds and sectoral funds maintain a significant allocation to automobiles and auto ancillary companies. By investing in these funds, retail investors gain exposure to the sector without the need to analyse individual stocks. Additionally, mutual funds often adjust sectoral weights based on market cycles, mitigating some of the risks associated with cyclical industries. 

Hybrid Funds or multi-asset funds that combine equities, debt, and thematic exposures can also provide a balanced way to benefit from the auto sector’s growth while managing volatility. Retail investors can look for funds that have a clear mandate to invest in industrial growth, consumer discretionary sectors, and infrastructure-linked companies, which often overlap with auto industry beneficiaries. 

IPOs and New Entrants — India’s auto landscape is not limited to established companies. The sector is witnessing a wave of initial public offerings (IPOs) from new-age manufacturers, EV startups, and component suppliers. Recent IPOs in the auto space, including Ather Energy, Hyundai Motor India, and Belrise Industries, have rewarded investors handsomely. However, investors must carefully evaluate the business model, growth potential, and competitive positioning of these companies, as several players, including Ola Electric Mobility Ltd., have also witnessed steep downtrends. 

Indirect Plays: Financing and Aftermarket Services — Investors can also consider companies supporting auto financing, insurance, and aftermarket services. Firms in vehicle financing, battery leasing, insurance technology, and car rental platforms benefit from increased vehicle sales and adoption of new mobility solutions. Investing in such indirect plays can provide exposure to the sector’s growth while spreading risk across complementary industries. An illustrative example is industry leader Bajaj Finance, whose shares climbed around 18-20 per cent in a month, fuelled by optimism over the GST rate cuts. 

Conclusion
India’s automotive story is a reflection of its broader economic rise, an evolution from scarcity to abundance, from restricted choices to global leadership. Every stage, from autorickshaws to SUVs to EVs, highlights how consumer aspirations, policy reforms, and industrial innovation intertwined. Today, the auto industry doesn’t just sell vehicles; it generates jobs, drives exports, and sparks investor confidence. Even amid headwinds like raw material costs, intense competition and global volatility, the trajectory is clear: India is steering toward becoming the world’s top automotive hub. 

For investors, the message is equally clear: this is a sector where history, momentum, and opportunity converge. While the broader outlook remains promising, the real key lies in selective investing, identifying companies with strong fundamentals, solid market share, revenue visibility, margin stability, diversified product lines, and export potential. Stay tuned with DSIJ for actionable insights to spot the right opportunities and ride the growth wave. 

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