Can India’s auto supply chain keep pace with the industry’s EV ambitions?

India’s automotive sector is entering a period of transition, driven by accelerating electrification and evolving supply-chain priorities. Over the last decade, India has become one of the world’s largest vehicle producers, and it is increasingly seen as a manufacturing destination particularly in automotive and EV components.

India’s automotive sector is growing; vehicle production has expanded from around 2 million units in FY92 to nearly 31 million units in FY25, supported by a domestic market of 25.6 million vehicles in the same year. The industry benefits from cost competitiveness in assembly-orientated manufacturing and a policy environment that increasingly targets EVs, batteries and component manufacturing through PLI schemes and state-level incentives.

However, in order to create sustainable competitive advantages, India needs to strengthen its EV supply chain substantially. India has chosen a path to indigenise the majority of the supply chain to become more competitive globally and self-reliant for its own demand. This strategy rests on the four pillars:

• Localising high-value components
• Securing critical minerals
• Building Tier-1 and Tier-2 Capabilities
• Policy Support

Localising high-value EV components

India’s progress in EVs is most visible in final assembly, particularly in two-wheelers and three-wheelers, where domestic production volumes have scaled up sharply over the past years. This growth has been driven by strong domestic demand, multiple new OEM entrants, and the shift from imported completely built units to locally assembled products. However, the level of domestic value-addition varies significantly across components. High localisation exists in mechanical and vehicle-integration activities, but value-add remains limited in cells, semiconductors, motor materials, and advanced power electronics. As a case in point, cells make up about 75-80 per cent of the cost of a lithium-ion battery pack. These cells are mostly imported.

The strategy of creating an entire EV system, thus, is based on developing a stronger Tier 1 and Tier 2 base.

Although the following examples show that there is a momentum in this direction, there need to be more such initiatives.

• Tata Group is building a large-scale lithium-ion cell gigafactory in Gujarat and has expanded domestic manufacturing of battery packs and e-powertrain subsystems.
• Exide and Leclanché (Nexcharge) are setting up advanced cell and pack manufacturing capabilities, focusing on LFP chemistries suited for Indian conditions.
• Lucas-TVS is developing hub motors and BLDC motors to serve India’s two-wheeler and three-wheeler segment.
• Ola Electric is investing in an integrated EV complex in Krishnagiri that includes cell manufacturing, pack assembly, and motor lines.

Securing critical minerals

The second and perhaps the most important pillar is ensuring a secure and diversified supply of critical minerals. Many of these minerals are not available in India, warranting political support in order to secure the suppliers. To build competitiveness in EVs, India need not replicate full upstream control. However, diversification will be essential. Given India’s limited access to lithium, nickel, and cobalt domestically, the strategy must combine:

• Long-term bilateral agreements with mineral-rich countries. KABIL, a JV between NALCO, HCL, and MECL, is forging agreements with countries in Argentina and Australia for lithium and cobalt access.
• Minority stakes in global mines by public and private sector players. Several private battery manufacturers are exploring long-term procurement contracts with mining companies in Africa and South America.

In addition, India needs to have a robust strategy to recycle the critical minerals to reduce dependence on imports. The volume growth provides a large recycle base which can provide a reliable source of critical minerals.

Critical mineral security will be a defining competitive differentiator. India cannot rely solely on raw material imports; it must build a circular, diversified mineral ecosystem.

Building Tier-1 and Tier-2 capabilities

A resilient EV sector requires a strong domestic supplier base, yet many legacy suppliers built around ICE technologies face capability gaps.

Three shifts are indispensable:

• Capital reallocation

Suppliers must reallocate capex from ICE machining lines to EV components. This problem is being solved by reducing risks through schemes like PLI.

• Talent and technology upgrading

The shift to EVs demands expertise in design engineering, embedded software, mechatronics, and digital diagnostics skills that many mid-tier suppliers must build.

• Collaborative R&D

Co-development with OEMs will become the norm as EV platforms evolve faster than traditional product cycles.

Bridging these will require partnerships with global technology leaders and sustained R&D commitments.

Policy support

Government policies are strengthening India’s EV supply chain foundations. To the credit of the government, the policy support has been agile and designed to facilitate the evolving needs of the EV industry. To further strengthen the impact, policymakers need to balance the policy stability with necessary tweaks to achieve desired outcomes.  The stasis may result in a cocooned industry, while instability will drive away the investors.

The current policy framework, illustrated by the following key extant policies, exhibits the evolution from demand-driven policies a few years ago to more holistic interventions

Production-linked incentive (PLI) schemes

These schemes are helping building Tier I and Tier II suppliers and have started showing adoption

• PLI – ACC (Advanced chemistry cells): An Rs 18,100 crore programme to boost domestic cell manufacturing. Beneficiaries include Reliance New Energy, Ola, Rajesh Exports, and Hyundai-Exide.
• PLI – Auto & auto components: incentivises EV components such as motors, power electronics, and fuel cells.

PM E-DRIVE (Electric mobility promotion scheme)

Demand-side intervention will help in capital reallocation with the larger base. The policy offers targeted incentives for electric two-wheelers, three-wheelers and commercial vehicles to support continued market uptake.

National lithium resource exploration programme

The push emphasises the importance of critical minerals. The policy intends to expand exploration in Jammu & Kashmir and Rajasthan to reduce import dependence.

Custom duty rationalisation

Calibrated tax framework that maintains lower duties on essential EV inputs while applying time-bound, component-specific tariffs or quotas to support early-stage localisation. Duty-free import of inputs should remain available for manufacturers meeting defined value-addition or export thresholds.

State EV policies

Various states are implementing policies to create an EV base in their respective boundaries, helping strengthen other pillars. Tamil Nadu, Karnataka, Gujarat, and Maharashtra are offering capital subsidies, land support, and green energy incentives to attract EV manufacturing. In combination these supports are likely to build a true national base akin to ICE automobiles.

India has the ambition; now it must build the depth

India’s EV sector continues to expand, supported by OEM investments, clearer policy direction and steady growth in adoption across vehicle segments. However, the primary constraint now lies in the depth of the domestic supply chain. Progress will depend on how quickly India can localise high-value components, strengthen Tier-1 and Tier-2 capabilities, and secure reliable access to core materials. The extent to which these elements develop over the next few years will determine India’s ability to enhance its role in the global EV supply chain and capture a larger share of value in emerging electrified segments.

This article was published in Manufacturing Today on 27 November 2025. Read here