India is an increasingly sought-after location for the supply chains of automotive giants. German carmaker BMW upped its India sourcing to 50% for the eight models that it manufactures at its plant in southern port city of Chennai. Within the luxury sector in India, Mercedes-Benz claims the largest investment at $159 million with 60% localization of its components.
In part due to this wave of foreign investments, the current fiscal year marked a turnaround in India's auto component industry as revenues crossed $35 billion--an 11% increase according to the Automotive Component Manufacturers Association of India. This is the biggest jump in 4 years.
This impressive growth can be attributed to strong consumer demand and favorable government policies. The first Automotive Mission Plan for the decade ending in 2016 implemented deregulation of foreign direct investment. The latest federal budget established some further concessions on excise duties which help auto parts makers.
Where is India's Detroit?
India's auto component industry is focused in three major regions. Chennai in the south and Pune in the west are optimal because of their proximity to ports and availability of skilled workers. The Delhi National Capital Region gained popularity from the success of Japan's Maruti Suzuki. With a market share of 45%, this company has the ambitious goal of launching 13 new products within the next four years.
Out of 800 domestic component suppliers in India, let's take a look at the big four. Headquartered in Pune, Bharat Forge features power train and chassis components for passenger vehicles, commercial vehicles, and SUVs. Motherson Sumi Systems, based in Noida, supplies wiring harnesses, mirrors for passenger cars, and plastic components. In Chennai, Sundram Fasteners manufactures radiator caps, pumps, and fasteners. Also in Chennai, Sundaram Clayton specializes in aluminum die castings for passenger cars, heavy commercial vehicles, and two wheelers.
Global parts makers are also expanding current Indian operations. Covering 95% of the market, Illinois-based Tenneco established Tenneco Automotive India, now a leading supplier of components for passenger cars to OEMs. Operating in Chennai and Pune, Michigan-based Visteon, is the second largest provider of automotive thermal management systems. Focusing on the manufacture of light diesel engines and systems for power generation, Indiana-based Cummins is among India's most succesful American companies. U.K.-based Delphi, with more than $200 million invested in its India operations, currently operates three plants located in Nagar, Uttarakhand and Mannur and Oragadam near Chennai. It plans to double the Oragadam plant's capacity for low-pressure carburizing, a heat treatment coating method. Delphi originated as the parts division of General Motors.
China is the top foreign supplier to India's industry at 21% of imports and a value of $2.6 billion annually. Germany, Japan, and South Korea each contribute over 10% through high technology components. Popular imports include batteries, wheels, and engine valves.
At 20%, the U.S. is the largest component exports destination for products from India. In addition, Germany, U.K., Turkey, Italy, and Brazil add up to 50% of the Indian automotive component exports. Principal exported automotive parts include piston rings, fuel pump nozzles, radiators, gears, brake assemblies & bearings, spark plugs and body parts. Exports may grow to $30 billion by 2020. India's exports of auto components have increased by 11.4% this year.
Secular growth in domestic consumption and international trade, along with more business-friendly government policy and investments into new technology bode well for India to continue to develop as a hub of automotive component manufacturing.