Making Indian Auto Components Industry A Global Super Power In The New Age Automotive World Of Electrical And Connected Vehicles

Introduction :

Indian automotive industry is globally 4th largest behind China, USA, Japan and Germany. It contributes around 7% to the GDP, almost 50% of the manufacturing GDP of India. The industry produces around 3 million cars and SUVs, 0.7 million 3 wheelers and 18 million two wheelers (scooters and motorcycles]. [Source SIAM data on automotive production 2020]. The industry has been growing around 10% YOY till 2019-20 when first time in last 10 years it saw a slowdown and reduced volumes. However post COVID we see a quick rebound in the auto industry with cars & two wheelers reaching to the pre COVDI levels already.

Though India is no. 4 in global car production, no. 1 in scooters and 3 wheelers and tractors, most of these products are consumed inside India. Exports of engineering goods has never been India’s strength. India’s share of cars exports in global market is just below 0.1% and in auto components it is just 3%. This needs to be improved significantly. We see electric vehicles and the new age automotive industry offers a significant opportunity to improve these numbers. 

The global market of cars is expected to be around$1Tn and auto components around $600Bn. The top 15 exporters of cars and automotive components are shown below:

Fig1: Top 15 global car and auto parts exporters [Source: World’s top experts report2020]

Indian Automotive Components industry is a very important part of our manufacturing eco system. It employs more than 40 million workers and around 20,000 companies are engaged in production, logistics, packaging and the other parts of the supply chain. This is an important contributor to the countries manufacturing GDP.   

However most of the industry turnover is generated from domestic market. Out of the aggregate turnover of $50Bn, only around $14Bn is generated from exports. The major export markets are Europe, USA and Africa. Majority of these products are sold in the aftermarket in these countries.

Fig2: Estimate of Indian auto components market turnover and share [Source: IBEF report on Indian auto components industry Nov’2020]

IBEF[India Brand Equity Foundation] report expects Indian auto components exports to reach around 26% of the total market of $50Bn. It expects the major two categories of electrical, electronics and engine & exhaust to contribute 34% of the total exports, next only to body parts and structure (32%). This is very important and promising for an industry backed by IT and services which already account for India’s majority of services exports of $205Bn [Indian Min of Commerce & Industry Annual report 2018-19]. So the platform is already set for Indian auto components industry to leverage these high value added exports to global markets.     

Fig3: Estimate of Indian auto components total and category wise export market potential [Source: IBEF report on Indian auto components industry Nov’2020]

Is EV the opportunity which could put Indian Auto components industry on global platform 

Global EV market is increasing rapidly. Europe is expected to take the lead in EV adaption with projected sales of 1 million vehicles in 2020. The global sale of EV is expected to rise to 11.5 million by 2025 and 32 million by 2030. BEVs will constitute around 35% of the total car sales by 2030. China will dominate the EV market with a 49% market share, Europe will be second with 27% and USA with 14% will be No. 3. [Deloitte Insights: Setting a course for electrical vehicles for 2030]. In India the earliest adapters of EV technology are 2 and 3 wheelers. Various reports assess Indian market adaption to EV vary from 30-80%. Niti Aayog vision report for Indian EV market 2019 assesses the smaller formats of 2 and 3 wheelers at 80% by 2030. That would mean 24 million 2 wheelers and 800,000 3 wheelers. The battery market is assessed at 159 kWH. This would mean  a market of $250Bn in India alone.

Fig4: Global Outlook for the car & Light duty vehicle markets- all types, major regionwise outlook for the electric vehicles [Source: Deloitte analysis IHS market 2020]

Opportunities for Indian Auto Components Industry in the EV domain:

Electric vehicles are the game changer for the automotive industry. This is a disruptive technology which makes the playing field even for auto and non auto companies. We see many legacy OEMs like GM, Ford, VW struggling while the new age start ups  like Tesla, NIO are moving ahead showing exponential growth. EV is not just a new product, it is the new way of manufacturing vehicles. Its a technology play at its best. The modern vehicles are an integration of software, electronics and hardware. In a way connectivity and mobility is coming together with cars having millions of lines of codes written in the software inside them. 

This is where the opportunity lies for Indian auto components manufacturers.

A modern car uses more than 500 sensors, 3000 chips and uses 1.5 km of copper in the wiring harnesses. These are all integrated with data sensing, analytics and intelligent technologies. The connected cars today are part of the modern energy eco system with car being able to feedback energy to the grid while idling. 

In EV the major components are :

Fig5: Major components in an Electric vehicle

Export potential analysis for Indian auto components industry in various components categories:

   *Cost per car is estimated based on a sedan price (costing around $70,000)  

Very high potential  Medium potential      Low potential

We find that the majority of high value items in a car are of high busness potential for the Indian auto components industry. This could be the game changer for the Indian insustry which has lagged behind China competing in low end traditional manufacturing industries.

Potential Enablers to the India’s automotive export vision:

1. Consistent Govt. push : 

India has seen a strong and decisive leadership in the present Govt. It has been proven in the current handling of Corona crisis. By timely locking down the entire country, the Govt curtailed the spread of disease. The Govt. policies on introduction of EV and curbing pollution. This has been demonstrated in various Govt. policies like FAMEII, allowing OEMs to sell without batteries and creating eco system for EV manufacturing. Apart from central Govt. various state Govts. Too have come out with their EV policies giving additional incentives, tax exemptions etc. Govt. of Delhi, Karnataka, Gujarat, UP are quote aggressive in their policies to attract EV adaption. 

2. Well established eco system of automotive and engineering industry : 

India is no. 4 in the world in passenger car production. We produce 3 million vehicles annually along with 20 million two wheelers. This is possible only through a large network of suppliers and sub suppliers spread out across India. When Indian supplier industry is able to cater to the demand of auto industry in India, it surely can meet the demands of global auto industry too.

3. Availability of trained engineers and human resources : 

India has the most available working age population in the world. [around 60% of population of 1.2 Bn]. India produces more than a 600,00 engineers annually. These young people with the right amount of training can be the right resources required to handle the massive surge in manufacturing.

4. Financial resources : 

India has a good financial ecosystem for business. Banks and other financial institutions are willing to lend to the manufacturing sector. FDI is allowed in the sector through automatic approval route. There are many Indian companies who have raised money through their joint venture or business partners in foreign currency through ECB loans. The Govt. guidelines on foreign currency transactions are quite conducive to business.    

Conclusion:

We do see a competitive electric vehicle industry developing in India supported with the Govt initiatives, related and supportive industries. As global industry moves fast on the EV adaption, we see tremendous opportunities for Indian auto components industry opening up. Unlike IC engine vehicles EVs are made up of lesser parts. Parts like motor, controller, electronics systems are far easier to export globally from India compared to engine blocks, gear boxes and drive trains of IC engines.  

MSMEs play a major role in success of any industrial base of a country. One of major reasons Japan’s success is attributes to is the well established base of SMEs. These are set up and brough up by the larger companies or OEMs under their Keiretsu system. Govt of India has come out   with special production link incentives for the industry in areas of battery and cell manufacturing for the EVs. There is a special fund being created for listing of SMEs with special taxation and policy roadmap. With infrastructure projects like dedicated freight corridors getting completed, an environment supported by road transportation, people access, technology and financial involvement is being created. Export logistics infrastructure for shipping from ports are being revamped. 

Backed by a strong industrial infrastructure and manufacturing competency, we argue for making India a strong base for exports. Indian Auto Industry should target at least 50% of turnover coming from exports from the present below 30%. Indian exports need to grow at a CAGR of 20% from now to achieve this target. We focus on the opportunities majorly in electrical and electronics parts. Modern automobile have around 50% of value made of electronics and IT. This is where the competency leverage for Indian industry would lie. Backed by a strong IT backbone, we can be tech centre of the global auto industry.  

Let the new era in Indian Auto Industry begin..

Dr. Deb Mukherji, PhD

Guest Author Managing Director, Omega Seiki Mobility. PhD in Economics has worked with leading Indian as well as global companies such as Suzuki and Honda and has set-up greenfield plants across India, Mexico and Thailand.