AI is becoming a major game-changer economically and technologically across various sectors in the world. The Indian automotive industry is one such area of development. This paper discusses AI’s impact on Indian automotive sector right from supply chain management, boost in production, smart AI systems through predictive maintenance, customization capabilities and development of autonomous vehicles. The Indian automotive industry is one such industry that greatly adds to the country’s GDP and employment, but at the same time presents challenges in terms of infrastructure, logistics and changing consumer needs that AI can address. With the advent of campaigns like Make in India and Digital India, India seeks to position itself as one of the leading figures in international production, and for this, the adoption of AI measures seems of strategic importance as this will facilitate productivity growth, competitiveness and meeting the aims of sustainable development (Aggarwal et al. in J Technol Forecast Soc Change 170, 2021 [1]; Chui et al. in AI adoption and economic growth: The case of India. McKinsey Global Institute, 2022 [6]). Through case studies of Indian companies and new startups using AI technologies, this research focuses on how AI can tackle complex supply chains, cut production costs and satisfy consumer expectations for going green, safety and personalization. At the same time, AI usage in India has its own challenges such as expensive introduction, lack of skilled labour, protection of personal data and strict rules. This paper posits that given the necessary assistance from the state, together with the cooperation of the industry and investment in AI specialists, the Indian auto industry is able to use AI for scaling in a competitive environment and to become part of India’s economy in a larger context.