December 3, 2023

New business models are threatening to disrupt the automotive industry. The recent trends of electrification, digitalization, autonomous driving, and mobility as services will change mobility behavior and create new opportunities for cooperation and competition. In India, the automotive industry is expected to grow by 8% in 2030. This includes both internal combustion engines and electric vehicles. Regulations and incentives, technological advances, and infrastructure development will disrupt car ownership and public transportation.

The auto component manufacturers will be the most affected by these changes. Currently, the Indian auto component industry employs 1.5 million people and contributes 25,6% to the manufacturing GDP. The government hopes to increase manufacturing’s share in the national GDP to 25% by 2022 through Make in India. The auto component industry will reach US$200 bn under AMP 2026 from the current US$43.5 bn. Exports will reach US$80 billion, or 40% of industry turnover. The expectations reflect a brand new India, but in order to achieve this goal, Indian manufacturers will have to monitor their value-innovation proposal for a viable business model.

It is not difficult to understand the economics of auto component disruption. Take a look at the two vehicle segments, i.e., ICE powertrain & BEV powertrain. According to the current conditions, an ICE engine’s value can be divided into three parts: raw materials (10-15% vehicle cost), component suppliers (50-55% vehicle cost), and OE manufacturers (30-35% vehicle cost). The value of a BEV is divided into four parts: raw materials (15-20% vehicle cost), component suppliers (30-35% vehicle cost), the battery supplier (35-40% vehicle cost) as well as the OE manufacturer (15-20% vehicle cost). Local manufacturers will benefit from this difference in value between ICE vehicles and EVs. What do component manufacturers have to do in order to be profitable?

Local Manufacturing is the Focus

Nearly 35-40% are imported when a vehicle leaves a factory. This percentage will increase as EVs become more popular due to a lack of technical expertise and investment. Imported components are a major factor in the cost of vehicles. Manufacturing locally is the only way to reduce costs, improve time-to-operate, and offer integrated offerings. OEMs import almost 2/3 of the EV components. If this fraction is reduced to a complete localization of components, then the cost of an EV sedan that runs for 200,000 km for five years will be comparable with an ICE.

Addressing Skill Gaps

Talent pools that are familiar with the technology and understand geographical boundaries and customer perception can drive innovation across new products and technologies. ICE technology has dominated the industry for almost a decade. Major innovations have also been a part of ICE technology. With the electrification of technology and digitization comes a new set of skills that need to be developed. Shareholders, industry experts, and academics, as well as government officials and youth, must adopt a joint integrated approach to knowledge sharing and technology creation. A change in perception can be brought about by creating a technological monopoly.

Capability Development

The future market for competing products will be totally different than the present. As the industry matures, the component suppliers are expected to define their operations. Manufacturers will be divided into two groups: either they will shift gradually from an ICE portfolio to EV, or they will diversify their product offerings into fleet management, charging infrastructure, and after-market services. Component manufacturers can take a stand by developing their capabilities in hardware, software, and integration.

Increase Global Impact

In 2017, India signed deals worth US $48,8 billion, a 33% increase over 2016. Automotive component manufacturers must explore international markets to gain access in three areas: electric and autonomous platforms, vehicle interfaces with infrastructure, and electronics technology. M&A with global players can give local manufacturers the expertise and confidence they need to understand OE requirements, move up the value chain, and focus on cost and quality.

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