How Auto Ancillaries are Adapting to the New Normal

Rapid transformation in the digital space, especially following the pandemic disruptions in the adoption of new cutting-edge technologies, has also prompted the evolution of the automotive industry across the globe. In India, the auto component manufacturers have been re-shaping the industry by relentlessly chalking out strategies to expand their capacity and create skill set to adapt to the changing trends of transportation.

Walking the Path of Green Mobility

In the country’s ambitious endeavor to achieve a sustainable economic growth in the near future, clean and green mobility will certainly play a key role – which has also reflected in the escalating penetration of electric vehicles (EVs) in general transportation. The Automotive Component Manufacturers Association of India (ACMA) has recently stated that among its 800 members, 60 per cent are ready to supply components to electric vehicle manufacturers and the rest have asserted to be prepared by the end of the year or 2023.

While the automotive sector contributes 7 per cent of the country’s overall GDP, the Indian EV component market was valued at $536 million in 2019 and is estimated to grow at a compound annual growth rate (CAGR) of 22.1 per cent between 2020 and 2030. Amidst this fast-paced transformational growth, the Indian auto component industry is expected to invest around Rs 16,700 crore in Financial Year (FY) 2023 and around Rs 20,800 crore in FY 2024 for capital expenditure – among which 25 to 30 per cent is expected to be invested towards clean mobility.

The Headwinds

The Indian auto component industry primarily comprises of manufacturers of mechanical and powertrain parts; among which the gradual transition to electric vehicles from the internal combustion engine (ICE) powered vehicles has become challenging for the players in the powertrain business. Experts in the industry believe that electric mobility might put 40 per cent auto component manufacturers at risk. Hence the sector will have to re-engineer their business models accordingly. However, the projected penetration of electric vehicles, especially passenger vehicles, is 10 to 20 per cent by 2030; which can imply that the conventional auto component manufacturers will have time to diversify the risk and the traditional architect will stay relevant for at least another two or three decades to come.

Government Incentivization

To encourage the domestic production of auto components for both ICE-powered vehicles and green mobility, central and state governments have also been strategizing various schemes like the Production Linked Incentive (PLI) scheme, under which 75 companies in the auto component manufacturing industry have planned to invest around Rs 29,834 crore over the next five years. Auto component makers are gearing up to scale up manufacturing of domestically built motors and controllers, battery management systems, chargers and charging stations, remote diagnostic facilities, etc.

While the electric vehicles will minimize the relevance of traditional auto parts like clutches, radiators and gears, it will also open the doors for manufacturing of new parts like electric motors, batteries, inverters and microprocessors. Start ups are expected to contribute the most in shaping EV sector and many new electric auto components makers have evolved in the market while the existing players are re-structuring their businesses to accommodate the EVs.