Global Majors Eye India Auto Market at China Sags

Nissan, Hyundai and others are investing in the country as rising income levels boost middle-class buyers

· After passenger-vehicle sales increased by 24% last year, India is on a par with Japan as the No. 3 country in terms of vehicle sales after China and the U.S.

· Arthur D. Little expects annual passenger-vehicle sales in India to top 7.5 million, roughly doubling from last year’s 3.8 million.

· Nissan and alliance partner Renault said they planned to invest about $600 million in India to produce six new models.

· Hyundai said it planned to spend more than $500 million introducing six EVs in India by 2028. On March 13, the South Korean auto maker said it planned to acquire a shuttered plant in western India owned by General Motors.

· China, the world’s biggest car market, where passenger-car sales hit a peak of nearly 25 million units in 2017.

· Foreign auto makers made up 47% of auto production in China near the end of last year from 54% in 2019

Global auto makers facing stalling sales in China and elsewhere are fixing their sights on India, a market that executives say has become too big to neglect despite historical challenges.

Over the past year, Nissan Motor Co., Hyundai Motor Co. and Volkswagen AG have announced new plans for India.

For years, Nissan “kept India on the backstage ready for growth,” Nissan Chief Operating Officer Ashwani Gupta said in an interview. “Now the market is growing.”

After passenger-vehicle sales increased by 24% last year, India is on a par with Japan as the No. 3 country in terms of vehicle sales after China and the U.S. By 2030, management-consulting firm Arthur D. Little expects annual passenger-vehicle sales in India to top 7.5 million, roughly doubling from last year’s 3.8 million.

Until recently, India’s passenger-vehicle market has been dominated by small, budget-friendly cars produced by Maruti Suzuki. The India unit of Japan’s Suzuki Motor Corp has captured close to half of India’s annual passenger-cars sales over the past two decades.

Many of the world’s top auto makers have found it difficult to stake a claim in the market with the bigger, higher-margin vehicles they sell elsewhere.

In 2021, Ford Motor Co. joined a handful of other auto makers, including Mitsubishi Motors Corp. and General Motors Co., that have exited India. Ford said at the time that it had accumulated billions of dollars in losses in the market and was seeing lower-than-expected demand for its new models.

That perspective may be changing. With income levels rising, “a new generation of middle-class consumer is emerging today that is purchasing bigger SUVs and crossovers and showing more interest in EVs,” said Akshay Prasad of Arthur D. Little.

Data from ratings firm Crisil show that utility vehicles made up more than 40% of all passenger-vehicle sales in India in the year ended March 2022, up from less than a third five years earlier. Electric-vehicle passenger car shipments increased roughly threefold last year over the previous year to top 41,000, according to government data.

In these segments, “non-Maruti Suzuki players have been given more hope to try to tap in,” Mr. Prasad said.

Nissan first invested in the southeastern city of Chennai more than a decade ago, building a development center and factory there. But in the years since, the Japanese auto maker paid more attention to core markets such as China and the U.S.

In February, Nissan and alliance partner Renault said they planned to invest about $600 million in India to produce six new models.

In 2021, Hyundai said it planned to spend more than $500 million introducing six EVs in India by 2028. On March 13, the South Korean auto maker said it planned to acquire a shuttered plant in western India owned by General Motors.

In August, Volkswagen said it agreed with Mahindra & Mahindra Ltd. to supply components for five electric SUVs to be produced by the Indian auto maker. The companies said they would explore further opportunities to collaborate on EV projects. Mumbai-based Tata Motors is also adjusting its vehicle lineup to meet shifting consumer demands, unveiling two electric SUVs at an auto show in India earlier this year.

Some global auto makers are grappling with troubles in China, the world’s biggest car market, where passenger-car sales hit a peak of nearly 25 million units in 2017, according to the China Association of Automobile Manufacturers. The figure was 23.6 million last year, the association said. Sales of battery-electric vehicles and plug-in hybrids are a bright spot, but local players such as BYD Co. are grabbing much of that new market.

Foreign auto makers made up 47% of auto production in China near the end of last year from 54% in 2019, according to automotive intelligence firm LMC Automotive. The country has “become distinctly tougher for foreign auto makers,” LMC said.

Volkswagen Chief Operating Officer Arno Antlitz said he wanted the brand to keep its position in its core Europe and China markets, but some hedging may be necessary. Mr. Antlitz said he saw tremendous growth opportunities in India, and “to be truly resilient, we have to take an even more global approach.”

Nissan recently raised its fiscal year 2026 electrification target in Europe and Japan, while lowering it to 35% from 40% in China. In China, it cited factors including growing competition from local manufacturers.

Mr. Gupta, the chief operating officer, said Nissan didn’t intend India to be a replacement for China. “We are revitalizing India because the government is supportive and the population and the customers are growing,” he said.