Why companies like Tata, Maruti, Mahindra and others don’t manufacture their own car parts

Synopsis: Even India’s biggest automakers outsource most car parts. This article explores the hidden complexity of modern vehicles, the economics of auto ancillaries, and why specialization, scale, and risk-sharing make suppliers irreplaceable to giants like Tata, Maruti, and Mahindra.

Tata Motors, Maruti Suzuki, and Mahindra are among the largest automobile manufacturers in India, commanding scale, capital, and decades of engineering experience. Yet, despite producing millions of vehicles every year, these giants do not manufacture most of the parts that go into their own cars. 

From engines and electronics to safety systems and wiring, a vast ecosystem of external suppliers sits between design and the final vehicle. Why do companies powerful enough to build entire cars choose not to build the components that make them run?

Understanding The Complexity 

A car is an incredibly intricate machine, made up of tens of thousands of individual components, each with its own journey to the assembly line. From wiring harnesses that carry electrical signals, to ABS brakes and airbags that protect lives, to interiors, cameras, and headlights, the list goes on. Many of these components are complex in their own right, such as engines or powertrains, which themselves contain dozens of smaller sub-components.

Take the diesel engine, for instance. It is a highly sophisticated system composed of hundreds of interconnected parts, including pistons, crankshafts, valves, fuel injectors, and cooling systems. Every part has a precise role, and all must work seamlessly together for the engine to perform efficiently. This level of complexity highlights the immense engineering effort behind even a single component in a car.

Automakers like Tata, Maruti, and Mahindra do not produce most of these parts in-house. Even when a key component, like an engine, is proprietary, many of its sub-components are sourced from specialized suppliers. These auto ancillary companies design, manufacture, and deliver the countless parts that make up a vehicle, ranging from fuel injectors and seat assemblies to wiring harnesses and beyond.

Understanding The Auto-Ancillary Business

The auto ancillary business works on very long timelines because it’s tightly linked to how car makers design and develop their vehicles. Automakers don’t usually start from scratch for every new model. Instead, they create vehicle platforms, a kind of shared blueprint that can support several cars. These platforms set out the chassis layout, drivetrain, suspension, and other key elements. Building a new platform takes years of R&D and a lot of money. But once it’s ready, multiple models can be launched on the same base. For example, Maruti Suzuki’s Heartect platform is used for cars like the Swift, Dzire, and Baleno, while Tata’s acti.ev platform is used for EVs like the Harrier and Curvv.

Suppliers get involved early in this process. When an OEM has a platform idea, it sends out a “request for information” or RFI to check which suppliers can design and manufacture the required parts. After that comes a request for quotation (RFQ), where shortlisted suppliers bid with details on costs, delivery timelines, risks, and investment needs. The winning supplier then co-develops parts for the platform, often locking in a multi-year deal that covers many models. If even one of those models becomes a hit, the business can grow significantly.

Before production starts, suppliers have to invest heavily in machinery and setup, which usually takes three to four years. Once mass production begins, the real work is in delivering parts just-in-time to the OEM’s assembly plants, often only hours or days before they are needed, since OEMs rarely keep large inventories. Deals like these stretch over many years, which is why suppliers often have order books far larger than their annual revenue. For instance, Sona Comstar earned just over Rs. 35 billion in FY25, but its order book at the end of the year was almost seven times that, set to convert into revenue gradually over the next decade.

Landing a platform contract also makes a supplier almost indispensable. Switching suppliers mid-way is extremely costly and complicated for OEMs because it means re-tooling factories and re-testing every part. That’s why once a supplier wins a platform, it tends to enjoy a long-lasting, sticky relationship with the OEM, giving the business stability for years to come.

The Economics of Auto Supply

The outsourcing model has certainly made automakers more efficient, but the risk hasn’t disappeared, it has simply shifted to the suppliers. Auto ancillary companies operate in a high-volume, low-margin environment with very particular economics that can be unforgiving.

Payment Cycles and Upfront Investment

Suppliers’ revenues are closely tied to vehicle sales. When car sales are strong, profits look healthy; when the market slows, margins can shrink rapidly. Payments are only made once parts are delivered, and typically arrive 30 to 90 days later. Meanwhile costs, especially capital expenditures, are heavily front-loaded. Winning a contract requires substantial upfront spending on R&D, prototyping, and dedicated tooling, often starting two to three years before production begins. If the vehicle underperforms, recovering these costs can be extremely challenging.

The Reality of Low Margins

The auto ancillary industry is famous for low-margins. Even large players often operate with net margins in the range of 5-8 percent. Contracts are awarded through competitive bidding, which drives prices down to minimal levels. Many parts are platform-specific, meaning they can’t be sold elsewhere if pricing becomes unfavorable. OEMs hold significant power, dictating contract terms that are typically fixed over the long term. Most agreements also include annual cost-reduction clauses, where suppliers are expected to lower part prices 1-3 percent each year as efficiency improves.

Operational Pressure and Commodity Risks

Suppliers also face strict delivery obligations under just-in-time manufacturing. Parts must arrive at the assembly line in the precise order, quantity, and timing required, often within hours. Penalties for delays or errors fall entirely on the supplier. In addition, ancillaries are exposed to fluctuations in raw material costs, which often make up more than half of total expenses. OEMs typically allow only partial cost pass-through, and any adjustments are slow. A spike in commodity prices can therefore heavily squeeze margins.

Margin Variability Across Segments

Not all parts carry the same margin pressure. Commoditized components, such as wire harnesses where players like Motherson dominate, tend to have very low margins. In contrast, specialized products like traction motors for EVs, as produced by Sona Comstar, require advanced technical expertise and can command higher margins, around 15 percent in this quarter. Ownership of intellectual property further strengthens a supplier’s negotiating power with automakers, providing additional protection against margin erosion.

Why Giants Like Tata, Mahindra & Maruti Don’t Make Their Own Parts? 

Why does the auto ancillary industry exist at all? If these components are so critical, why don’t automakers produce them in-house? Historically, they did. In the mid-20th century, companies such as Ford, GM, and Tata Motors were highly vertically integrated. Ford’s River Rouge complex exemplified this approach, controlling every stage of production from raw materials like iron ore and coal to the finished vehicles.

By the early 2000s, however, the limitations of vertical integration became evident. Most major automakers began divesting or spinning off their parts divisions. Today, a substantial portion of a vehicle’s production value comes from specialized suppliers, with OEMs serving primarily as coordinators of an extensive network of external manufacturers rather than producing every component themselves.

This shift is largely driven by complexity. Modern vehicle components are highly sophisticated, encompassing electronics, advanced materials, safety systems, and more, each requiring dedicated R&D and manufacturing expertise. It is no longer practical for a single automaker to invest in producing thousands of distinct parts while also focusing on assembling the final vehicle. Independent suppliers can achieve economies of scale by serving multiple OEMs, justify investments in specialized production technologies, and spread costs across a broader customer base.

Finding Profit In A Tough Business

So, how do auto component makers actually generate profits in such a challenging industry? The most straightforward path is through scale and high capacity utilization. Producing at full capacity allows suppliers to spread their fixed costs, machinery, tooling, and plant overhead, over larger volumes. But there’s a catch: scale without full utilization can be disastrous. These upfront investments are massive, and revenues only start flowing years after the capital is committed. During a market slowdown, those same fixed costs can become a heavy burden.

To navigate these pressures, suppliers have developed a few key strategies. One major avenue is aftermarket sales. Replacement parts, sold through authorized dealers or independent mechanics, operate under different dynamics than new car sales. Demand is driven by the existing vehicle population rather than new launches, providing more stable revenue and often better pricing power.

Exports are another important cushion. Selling to overseas markets can bring higher margins, and while the Indian ancillary industry is still largely domestic, exports to regions like North America and Europe are steadily increasing. This not only enhances profitability but also helps hedge against domestic slowdowns. 

Diversification is the third key strategy. Successful suppliers avoid relying too heavily on a single OEM, platform, or product line. Many supply components across passenger vehicles, commercial vehicles, and two-wheelers, while some expand into related industries such as aerospace or industrial equipment. For example, Bharat Forge, a leading axle beam manufacturer, has been strategically growing its presence in defence systems, including drones and artillery, to broaden its revenue base.

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