The globe is gradually but steadily turning away from polluting machines in an effort to undo environmental damage and create a cleaner future. Additionally, transportation—which accounts for roughly 24% of global direct CO2 emissions—is being monitored.
And for this reason, electric mobility is gaining popularity worldwide, including in India. According to a report by the India Energy Storage Alliance, the global market for electric vehicles is anticipated to increase at a compound annual growth rate of 49% between 2021 and 2030, with annual sales predicted to reach 17 million by that year.
By 2030, NITI Aayog wants EV sales to be 70% of all commercial vehicles, 30% of private vehicles, 40% of buses, and 80% of two- and three-wheelers.
The industry has a very clear message. According to a Business Standard article, automakers, including component producers, have set aside Rs 70,630 crore for EVs over the next five years.
But what about the businesses and environment that depended on cars with internal combustion engines (ICEs) that guzzle gasoline and diesel?
The prosperous auto parts market is preparing for a fundamental upheaval. Just over 2% of India’s GDP is made up of it. It generated its highest-ever turnover in FY22 of $56.5 billion, up over 23%, and its highest-ever exports of $19 billion, up 43%. The sector hopes to generate $200 billion in income by 2026, and car component exports are predicted to reach $80 billion by that time, according to the Automobile Component Manufacturers Association (ACMA).
For the industry, the switch to EVs brings both opportunities and difficulties. For instance, there will be a significant transition from conventional ICE components to e-drive systems and modules.
The Indian market for electric vehicle components is expected to increase at a compound annual growth rate of 76% to Rs 72,500 crore by fiscal 2027, according to ratings agency CRISIL. Batteries, drivetrains, electronics, and other EV components give car component manufacturers a chance to expand their customer base beyond ICE vehicles. Approximately 75% of traditional car component manufacturers’ revenue originates from products that are used in EVs as well. Therefore, according to a previous analysis by CRISIL, such organisations do not find growth to be a barrier. The suppliers of the 25% of components that are redundant in EVs that are at danger.
The move to EVs may also pose a threat to component manufacturers whose primary source of revenue has historically been engine parts as well as to ICE powertrain players who only offer products for ICE engines and transmissions. Additionally, there are fewer parts in EV powertrains, which will have an impact on the aftermarket industry and lower replacement revenue.
In FY22, the aftermarket had a $10 billion revenue. The millions of current and future employees in the sector will also be affected to some extent. For instance, EV component manufacturers need more technical personnel than do regular ICE component manufacturers.
The car parts sector, on the other hand, is attempting to expand beyond ICE automobiles. The businesses have already started investing in electric components for both EV and conventional ICE vehicle manufacturers, even though they still have time to do so.
According to ICRA, between 25 and 30 percent of the expenditures made by manufacturers of automotive components in FY23 and FY24 will go into EV projects. According to the industry group ACMA, 60% of its 800 members are prepared to supply parts to EV manufacturers, which is encouraging. For instance, Uno Minda has already started to create particular EV-related items.
Another manufacturer of car components, Sona BLW, received 62% of their order book from electric vehicles in FY22. Additionally, the sector needs to make large investments in R&D to create capabilities unique to EV powertrain components. The average R&D expenditure of component makers represents barely 0.5% of their total spending, which is one area where the industry is falling behind. Sunjay Kapur, president of the ACMA, believes that the same needs to increase by at least 3%.
According to experts, the transition to EVs presents the auto component sector with more opportunities than challenges. The fact that there is still time to diversify and de-risk portfolios is a plus.
