In recent years, India has become the fastest-growing economy in the world. This fast growth, coupled with rising incomes, boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. Significant demand for automobiles also led to the emergence of more original equipment and auto component manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles & auto components. Hence, the Indian automobile industry has a considerable impact on the auto component manufacturing industry.
India attracts international auto component leaders
India’s auto components industry’s market share has significantly expanded, led by increasing demand for automobiles by the growing working population, expanding middle class and exports globally. The two-wheeler segment dominated the automobile industry because of the Indian middle class. Due to the remarkable growth in demand for Indian auto components, several Indian and international players have entered the auto component manufacturing industry.
The automobile component industry’s turnover stood at ₹4.20 lakh crore ($56.5 billion) in FY 2021-22. The industry had revenue growth of 23% over the previous year. As per the Automobile Component Manufacturers Association forecast, the auto component industry is projected to record $200 billion in revenue by 2026 and exports from India are expected to reach $ 30 billion by 2026. Strong international demand and a resurgence in the local original equipment and aftermarket segments are predicted to help the auto component industry grow by 20-23% in FY 2022-23.
The overall Indian automotive market is expected to grow at a compound annual growth rate of 11.30% from 2020 to 2027 and to be the world’s third largest automotive market in terms of volume by 2030.
The rapidly globalising world is creating new opportunities for the transportation industry, especially while shifting towards electric, electronic, and hybrid cars, which are deemed more efficient, safe, and reliable modes of transportation. Over the next decade, this will lead to new verticals and opportunities for auto component manufacturers. To adjust to the shifting dynamics of the sector, the Indian government has already offered various production incentives to support them.
And due to low production costs and relatively high profit margins, India is one of the world’s largest producers of automotive components. Also the expanding involvement of multinational car OEMs in the Indian auto component business has resulted in a considerable increase in component localisation.
Today’s economies are dramatically changing, triggered by development in emerging markets, the accelerated rise of new technologies, sustainability policies, and changing consumer preferences around ownership. Digitisation, increasing automation, and new business models have revolutionised other industries, and the automotive industry will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity, which are creating new business opportunities in the auto component industry.
Most industry players and experts agree that the four trends will reinforce and accelerate one another, and that the automotive industry is ripe for disruption, driven by shared mobility, connectivity services, and feature upgrades. New business models could expand automotive revenue pools by about 30%.
Connectivity, and later autonomous technology, will increasingly allow the car to become a platform for drivers and passengers to use their time in transit to consume novel forms of media and services or dedicate the freed-up time to other personal activities. The increasing speed of innovation, especially in software-based systems, will require cars to be upgradable. As shared mobility solutions with shorter life cycles will become more common, consumers will be constantly aware of technological advances, which will further increase demand for upgradability in privately used cars as well.
Meanwhile, the market introduction of Advanced Driver Assistance System (ADAS) has shown that the primary challenges impeding faster market penetration are pricing, consumer understanding, and safety/security issues. Regarding technological readiness, tech players and start-ups will likely also play an important role in the development of autonomous vehicles. Regulation and consumer acceptance may represent additional hurdles for autonomous vehicles. However, once these challenges are addressed, autonomous vehicles will offer tremendous value for consumers, for example, the ability to work while commuting, or the convenience of using social media or watching movies while travelling. Fully autonomous vehicles are unlikely to be 15% of new car sold in 2030.
Software competence – A game-changing development
In another game-changing development, software competence is increasingly becoming one of the most important differentiating factors for the industry, for various domain areas, including ADAS, safety, connectivity, and infotainment. Furthermore, as cars are increasingly integrated into the connected world, automakers will have no choice but to participate in the new mobility ecosystems that emerge as a result of technological and consumer trends.
In recent years, several automobile OEM manufacturers have shifted their plants to India, so the demand for automotive components has increased. Component manufacturers might have many challenges, like rising production costs, delivery time, manpower shortages, or increases in wages. Leading parts makers in India have been forced to look at other derisking options due to rising input costs, thereby giving the country an opportunity to become a major manufacturing hub.
Stricter emission regulations, lower battery costs, more widely available charging infrastructure, and increasing consumer acceptance will create new and strong momentum for penetration of electrified vehicles (hybrid, plug-in, battery electric, and fuel cell) in the coming years. The speed of adoption will be determined by the interaction of consumer pull and regulatory push, which will vary strongly at the regional and local level.
Diverging markets will create opportunities for new players, which will initially focus on a few selected steps along the value chain and target only specific, economically attractive market segments—and then expand from there. While Tesla, Google, and Apple currently generate significant interest, we believe that they represent just the tip of the iceberg. Many more new players are likely to enter the market, especially cash-rich high-tech companies and startups. These new entrants from outside the industry are also wielding more influence with consumers and regulators, that is, generating interest in new mobility forms and lobbying for favourable regulation of new technologies.
Success in 2030 will require automotive component players to shift to a continuous process of anticipating new market trends, exploring alternatives and complements to the traditional business model, and exploring new mobility business models and their economic and consumer viability. This will require a sophisticated degree of scenario planning and agility to identify and scale new attractive business models.
Industry’s healthy growth
India is also investing heavily in electric car infrastructure as we need to find alternatives that are cheaper, affordable, safe and sustainable. While the industry is busy dealing with these problems the consumers are scared with news of EVs burning into flames. We need to find solutions as per the Indian standards. Batteries are the heart of EVs. Any compromise with that will lead to unpleasant results. From the manufacturing industry’s point of view, auto component suppliers and toolmakers that are specifically focused on engines and related components will have to strategize their business operations. Since EVs will not have engines and powertrains, companies will have to make a gradual shift towards other components of the vehicle in order to sustain the business.
The Indian auto-components industry has experienced healthy growth over the last few years and is expected to further grow to $ 200 billion by 2026. The industry has also witnessed a drastic evolution in important technological advancements. Therefore, remaining competitive could pose a greater challenge than many manufacturers realise.