India is now the world’s fourth-largest vehicle market (PIB Delhi 2025), employing over 37 million people (MIB 2023), establishing its position as a global automotive leader. Since liberalization, the automotive industry’s share of the national gross domestic product (GDP) has risen from 2.8% in FY 1993 to 7% in FY 2024 (MIB 2023). The Auto-component manufacturing (ACM) industry posted a turnover of USD 74 billion (INR 6.19 lakh crore1) in FY 2024, reducing import dependence and supplying parts to major original equipment manufacturers (OEMs) internationally. This performance is built on a layered value chain, with global and domestic OEMs at the top, Tier-1 and Tier-2 suppliers in the middle, and a vast base of micro, small, and medium-sized enterprises (MSMEs) at the foundation. These MSMEs create local jobs, spur innovation, and anchor regional manufacturing clusters.
Driven by climate imperatives and air quality concerns, India aims for 30% EV penetration by 2030 (PIB 2023). A mix of fiscal incentives, tightened emission regulations, and rising private investments is driving this transition, with EV sales growing at a compound annual growth rate (CAGR) of 57% from 2018 to 2024 and reaching a market penetration of 7.5% as of 2024 (Dalvi 2025). The transition is reshaping the supply chains, workforce requirements, and competitive dynamics across the entire automotive ecosystem.
However, the ongoing transition exposes MSMEs to disproportionate risk as demand for internal combustion engine (ICE) components declines and EV powertrain components gain prominence. MSMEs account for roughly three‑quarters of India’s ACM and generate a quarter of the industry’s total turnover (CRISIL Research 2024). Their agility, regional footprint, and expertise in core manufacturing processes make them indispensable to OEMs that demand faster innovation cycles and localized sourcing. As EV uptake rises, the conventional ICE value chain faces upheaval. A notable share of ICE-specific components risks obsolescence, while demand surges for EV components, such as batteries, power electronics, and traction motors. This radical shift is likely to disrupt the automotive value chain players, especially MSMEs that traditionally focus on producing parts for conventional vehicles.
Conversely, this shift unlocks new avenues to diversify their portfolios and tap export demand. Entering the EV business will require MSMEs to augment their production capabilities, invest in cutting-edge technologies, and reskill their workforce. Supportive measures are therefore critical to cushion the short-term financial shocks and position MSMEs for long-term growth. This is especially relevant for MSMEs, which constitute 80% of the ACMs in India (Dash 2023). Insights from CPI’s stakeholder consultations with MSMEs point to a dual reality. A small share of these MSMEs currently supply EV components, as the rest cite limited demand, scarce technical expertise, and steep capital costs as deterrents to entering the market. Yet the firms that have pivoted to EV business report diversified revenue, stronger order books, and access to export markets aligned with global decarbonization goals. The EV shift presents, therefore, not merely a threat but a growth horizon for MSMEs, provided the right policy signals, financing solutions, and capability‑building programs are in place.
