Auto Sector: Entry-Level Wars, Top-Model Dreams & the EV Disruption

The sector is back in focus, shifting gears following the recent repo rate cut. As mobility becomes more of a necessity than a luxury, the sector reflects a tale of two Indias: one still striving for entry-level access, the other chasing high-performance luxury machines that fuel status and aspiration. Meanwhile, EVs are no longer the future, they’re the now, adding a whole new dimension to the mobility narrative. Mandar Wagh decodes the sector’s financials, stock movements, growth triggers, and risks shaping the road ahead 

Automobiles have become an inseparable part of our daily lives, kickstarting our mornings and carrying us through routines we barely notice. Yet behind the wheel lies a story of contrasts. As India races to claim its top spot among global automotive leaders, the industry reflects both aspiration and accessibility. For some, a basic vehicle remains a distant dream; for others, it’s the pursuit of high-end luxury machines that fuels ambition. This duality underscores the vast, untapped potential of the Indian automobile market, making it a sector that investors can’t afford to overlook. 

Historically, the sector has mirrored the broader economic trajectory, making it a key indicator of growth or slowdown. It continues to stay in the spotlight, driven by ongoing research breakthroughs, cutting-edge technology, electric vehicle advancements, new model launches, and regular sales updates. Let’s delve into its financial performance, examine what stock movements reveal about investor sentiment, and explore the future growth triggers and potential risk factors shaping the road ahead. 

About the Sector
India’s automobile and auto ancillary sector is one of the largest contributors to the country’s manufacturing GDP and export earnings. India has emerged as the third-largest automobile market globally by volume. As of FY24, the automobile industry was valued at around USD 120 billion, while the auto components segment surpassed USD 70 billion, with exports forming a significant share of revenue. According to the Automotive Component Manufacturers Association of India (ACMA), the components industry is expected to grow at a CAGR of 10-12 per cent, driven by robust domestic demand, increasing export potential, and strong localisation efforts. 

The sector is broadly segmented into two main categories including automobile manufacturing and auto components (ancillaries). The automobile segment includes passenger vehicles, two and three-wheelers, commercial vehicles, and tractors. Meanwhile, the ancillary segment encompasses manufacturers of engine parts, transmission systems, batteries, brakes, electronics, and more. Leading players in the OEM space include Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Bajaj Auto, TVS Motor Company, and Hero MotoCorp, all of which have played pivotal roles in shaping India’s mobility landscape. 

In the auto ancillary segment, Bosch, Motherson, Bharat Forge, and UNO Minda stand out as key contributors, offering a wide array of high-quality components across global markets. The two-wheeler segment continues to dominate the Indian automobile market in terms of volume, driven by a rising middle-class population and a large proportion of young consumers. In FY25, two-wheelers and passenger vehicles accounted for around 75 per cent and 20 per cent of the market share, respectively. 

On the global front, the electric vehicle (EV) market, valued at around USD 250 billion in 2021, is projected to grow nearly fivefold by 2028, supported by technological advancements, environmental consciousness, and policy incentives. India is also making steady progress in EV adoption and achieved a significant milestone with the sale of one million EVs in FY24-25, marking a key step toward sustainable mobility and energy security. 

Financial Performance
To present a comprehensive view of the sector’s performance, we have analysed all the constituents of the BSE Auto Index, covering both automobile manufacturers and auto component makers. The overall outlook for the auto and ancillary sector in FY25 remains positive, with aggregate revenue rising by a healthy 13 per cent year-on-year compared to FY24. A key driver of this performance was Mahindra & Mahindra Ltd, the sector’s market capitalization leader, which reported a decent 14 per cent revenue growth, thereby contributing meaningfully to the sector’s topline strength. 

Importantly, both segments delivered encouraging results, with several companies achieving double-digit revenue growth. On the profitability front, the sector registered a modest 2-3 per cent year-on-year rise in net profit. However, this figure would have been significantly higher if not for the drag from Tata Motors Ltd, which had contributed nearly one-third of the sector’s total profits in FY24, but reported a sharp 28 per cent year-on-year decline in net profit in FY25. 

Mahindra & Mahindra Ltd 

Mahindra & Mahindra’s robust R&D capabilities continue to be a cornerstone of its growth strategy and market leadership. In FY24, the company secured a record 674 patents, nearly four times the previous year’s tally, highlighting its intensified focus on innovation and technology-led differentiation. At the heart of this effort is the Mahindra Research Valley, a world-class facility employing over 4,000 engineers and designers, dedicated to advancements in electric mobility, safety technologies, autonomous systems, and next-generation vehicle platforms. 

Looking ahead, M&M has announced a `26,000 crore investment plan for FY25-FY27, with nearly `12,000 crore allocated toward electric vehicle development. A major milestone on this front is the upcoming launch of its multienergy ‘INGLO’ platform, which will underpin a new range of SUVs and EVs. The company is also scaling up its production capabilities, with highly automated EV manufacturing lines already in place. By aligning R&D investments with emerging mobility trends, Mahindra is building a future-ready product portfolio. This tech-forward approach is not only strengthening its competitive edge but also boosting investor confidence in its long-term vision. 

Tata Motors Ltd 

Tata Motors reported flat revenue growth in FY25, reflecting a mixed performance across its core business segments. On the domestic front, both passenger vehicle (PV) and commercial vehicle (CV) segments experienced volume declines, impacted by muted rural demand, elevated interest rates earlier in the financial year, and persistent inflationary pressures. This weakness, however, was partially offset by the steady performance of Jaguar Land Rover (JLR), which contributed nearly 70 per cent of the company’s consolidated revenue. While JLR’s full-year revenue remained broadly stable, its global sales helped cushion the impact of weaker domestic volumes. 

Despite this support, Tata Motors reported a 28 per cent year-on-year decline in net profit, primarily due to the absence of a large one-time tax gain recorded in FY24. Last year, a deferred tax credit of approximately `9,000 crore had significantly boosted profitability. Without a similar gain in FY25, and with an exceptional expense of `566 crore in Q4FY25, profitability came under pressure. Furthermore, margin contraction at JLR, owing to higher discounting and cost challenges combined with lower domestic volumes, affected operating leverage. 

We have examined its performance separately in detail, as it plays a crucial role in shaping the overall assessment of the sector’s financial health. While most leading auto OEMs delivered strong bottom-line growth, several renowned ancillary players including Bosch Ltd, Apollo Tyres Ltd, MRF Ltd and Exide Industries Ltd reported significant year-on-year 

declines in net profit. This contrast was primarily driven by the differing pace of demand recovery and margin dynamics across the value chain. 

Auto manufacturers, particularly those focused on premium passenger vehicles, SUVs, and electric vehicles, benefited from resilient urban demand, richer product mix, and easing input costs like metals and semiconductors. In contrast, several auto parts manufacturers struggled with slower order inflows, particularly from the two-wheeler and commercial vehicle segments, where volume recovery remained weak. Additionally, ancillary companies faced inventory adjustments, pricing pressures from OEMs, and lagging pass-through of input cost fluctuations. Smaller suppliers without diversified customer bases or EV exposure saw further pressure. 

Moreover, while OEMs had better bargaining power and brand-led pricing flexibility, component makers, especially Tier-2 and Tier-3 vendors remained squeezed between rising operating expenses and cautious order books. Another major factor has been the weakness in the replacement segment. Over the past year, slower offtake in this space has been driven by extended replacement cycles, reduced freight activity, and a decline in rural demand. 

The divergence highlights how the benefits of recovery are not evenly distributed across the auto value chain, underscoring the need for investors to differentiate between leaders with global exposure, technological readiness (EV components, electronics), and those heavily reliant on legacy vehicle platforms. 

Stock Performance
As of this writing, the BSE Auto Index, which tracks the performance of India’s leading automobile and auto ancillary companies, is down more than 6 per cent on a one-year basis. Despite a notable rebound in recent months, the index still trades nearly 15 per cent below its 52-week high, reflecting the uneven recovery across the sector. Investor sentiment has closely mirrored the financial performance of listed auto companies. A distinct trend has emerged: most automobile manufacturers have delivered healthy shareholder returns over the past year, even after enduring a prolonged weak phase since October 2024. 

On the other hand, the worst-performing stocks within the index have largely been auto ancillary players, many of whom have shown persistent weakness across multiple time frames. The comparatively stronger topline and bottom-line growth delivered by automobile manufacturers, as opposed to ancillary companies, has been the key differentiating factor. The contrast in market performance serves as a reminder that strength in the broader sector doesn’t always translate uniformly across the value chain. 

June 2025 Auto Sales
India’s auto sales in June 2025 painted a mixed picture, with several top carmakers witnessing a slowdown in domestic demand. Maruti Suzuki, Hyundai, and Tata Motors all reported year-on-year declines in passenger vehicle sales, largely due to weak urban demand, softer consumer sentiment, and a slowdown in mass-market segments like compact and entrylevel cars. However, Mahindra & Mahindra emerged as a clear outperformer, registering nearly 18-20 per cent growth in domestic PV sales, driven by strong demand for its SUV portfolio. 

Toyota also saw modest gains, while Kia and Skoda posted strong half-yearly growth, reflecting brand resilience and growing consumer preference for premium features. On the electric mobility front, EV sales remained steady at over 1.8 lakh units, with two-wheelers forming the bulk of demand. Despite broader market pressures, SUVs and exports continued to offer support to the industry. The overall trend signals a shift in consumer preferences toward feature-rich, higher-end models, even as the entry-level and rural markets remain under stress. 

Growth Triggers
India’s auto and ancillary sector stands at a promising inflection point, fuelled by structural reforms, shifting consumer preferences, and robust policy support. The government actively promotes foreign investment in the automobile sector, permitting 100 per cent Foreign Direct Investment (FDI) through the automatic route. This investor-friendly policy framework aims to attract global players, boost technology transfer, and strengthen India’s position as a global automotive manufacturing hub. One of the most significant growth triggers is the rising middle-class income and aspirational demand, especially in Tier II and III cities. 

As mobility becomes a necessity rather than a luxury, the demand for personal vehicles, particularly two-wheelers and compact cars, continues to expand. Another key driver is the government’s push for localization and self-reliance. Initiatives such as the Production-Linked Incentive (PLI) scheme for Advanced Automotive Technology (AAT) and components, coupled with faster clearances under the ‘Make in India’ campaign, are enhancing domestic manufacturing capabilities. Additionally, the rise of EVs is opening new avenues for component manufacturers involved in batteries, motors, sensors, and EV-specific electronics. 

The government has rolled out the PM E-DRIVE scheme with an allocation of `10,900 crore, effective from October 1, 2024, to March 31, 2026. This initiative is designed to fast-track the adoption of EVs, expand charging infrastructure, and strengthen the domestic EV manufacturing ecosystem, positioning India as a key player in the global clean mobility shift. The sector also benefits from increased infrastructure development, including expressways, industrial corridors, and logistics parks, which improve supply chain efficiency. 

Global supply chain diversification post-COVID-19 has positioned India as an attractive sourcing hub for global automakers, further aiding export potential. Moreover, the OEM-ancillary ecosystem in India is deeply interlinked, encouraging innovation and cost competitiveness. Digitization in vehicle design, automation in manufacturing, and integration of smart features are also enhancing customer value and driving premiumization trends. All these elements create a long runway for multi-year growth in both vehicle demand and component exports. 

Risk Factors
While the sector offers promising growth potential, it is not without its share of risks that could impact investor confidence and business performance. A major concern is the cyclical nature of automobile demand, which is highly sensitive to economic slowdowns, interest rate movements, and fuel price volatility. Any dip in consumer sentiment can lead to inventory pile-ups and margin pressure across the value chain. With the RBI reducing the repo rate amid easing inflation and strengthening economic fundamentals, the likelihood of these risks materializing in the near term remains low. 

The replacement market, a key revenue stream for ancillary players, has recently been under pressure. It limits the aftermarket sales potential and affects the profitability of component manufacturers. Another key challenge is the rapid technological transition toward electric vehicles. While EVs present new opportunities, they also threaten traditional component segments such as engine parts, exhaust systems, and gearboxes, which may become obsolete. Ancillaries heavily dependent on internal combustion engine (ICE) parts face significant technological obsolescence risk unless they invest in EV-ready capabilities. 

China is the dominant global supplier of rare earth metals which are crucial components used in batteries and advanced automotive systems. Any supply chain disruption from China poses a serious risk to global automakers. Recently, Maruti Suzuki significantly trimmed its near-term production target for its debut EV, the e-Vitara, citing a shortage of rare earth metals as a key constraint. 

Additionally, raw material price volatility, especially in steel, aluminium, rubber, and rare earth elements, impacts cost structures and may compress margins, particularly for smaller players who cannot pass on costs. Regulatory and environmental mandates are becoming stricter, which require continuous capital expenditure on compliance and R&D. For small- and mid-sized players, this could strain balance sheets. Thus, while the sector’s outlook is optimistic, these factors warrant careful evaluation before making investment decisions. 

Conclusion
The Indian automobile and ancillary sector continue to be a bellwether of economic momentum, reflecting both the resilience and evolving aspirations of the country. While leading OEMs have delivered notable performance on the back of rising urban demand, product innovation, and greater EV adoption, the ancillary segment is facing a phase of recalibration. Margin pressures, subdued rural sentiment, and a lag in replacement demand are challenging the earnings trajectory of several component makers, especially those with limited diversification or exposure to legacy platforms. 

Looking ahead, the road for the sector is not without speed bumps. However, long-term fundamentals remain intact. The shift toward green mobility, intelligent transport systems, and integrated urban transport planning is expected to redefine mobility solutions in India. Companies with strategic clarity, technological preparedness, and scale advantages are wellplaced to thrive. From an investment standpoint, the sector offers a blend of cyclical plays and structural stories. 

While two-wheelers and entry-level segments may see nearterm softness, premium vehicles, EV-centric players, and export-driven ancillary companies hold promise. Moreover, with digital technologies reshaping the customer journey— from vehicle discovery to aftersales—companies investing in digitisation, automation, and customer experience are likely to gain disproportionate market share. In essence, the auto sector’s journey ahead will be driven by innovation, differentiation, and disciplined capital allocation; qualities that discerning investors should track closely while navigating this dynamic and transformative space.