Auto industry braces for impact as India begins shift to electric vehicles
New Delhi: Abhay Firodia is not perturbed by the possible impact that the advent of electric vehicles may have on the ecosystem for automobiles.
“Bank employees went on strike when they were introduced to computers,” the 73-year-old chairman of Force Motors Ltd, Pune-based light commercial vehicle manufacturer, and president of the Society of Indian Automobile Manufacturers, or Siam, told Mint last year when asked if the industry has assessed the impact of such a gigantic shift towards electric vehicles.
The government plans to switch to electric vehicles by 2030, which has now been described by road transport minister Nitin Gadkari as unofficial.
Firodia may have been unconcerned about the changes that the industry may have to undergo but the Automotive Component Manufacturers Association of India (Acma), the industry lobby that represents companies who do business worth Rs1.45 trillion, rushed to NITI Aayog in December. The idea was to express concern to the government that a sudden move to large-scale adoption of electric vehicles (EVs) could lead to massive job losses.
“Suppliers are underestimating the speed of change, while being 7-8 years behind global peers on tech... leading to a significant impending local threat from global peers,” Acma told NITI Aayog in presentation reviewed by Mint.
“With industry investments and jobs at stake, the country cannot afford to lose the domestic component industry in her quest for EVs,” Acma said, suggesting that millions of jobs could be at stake if there is a sudden moves towards electric vehicles.
It was a desperate plea, especially given the fact that internal combustion engines (ICE), which are used in most cars, have more than 2,000 moving parts, while an electric vehicle has about 20, resulting in fewer breakdowns. Among the parts that will see demand dry up once electric vehicles dominate in India, are engines, transmission, aluminium castings, cylinder blocks and cast iron. These will give way to an electric motor run by batteries.
The Acma presentation said the ICE powertrain contributes to over 60% of the employment generation in the auto component sector, and that a switch to 100% electric could impact up to 5.6 million jobs by 2025-26.
Automobile component manufacturers are known as the bedrock of the industry across the globe.
Siam in concurrence with the NITI Aayog, has proposed that 40% of vehicles in India would be shifted to electric while vehicles used for public transport would be 100% shifted to electric by 2030.
The emergence of electric vehicles means a new ecosystem will have to be built and a lot of component manufacturers who make engine parts, pistons, rubber tubes, etc, will have to shut shop or adapt.
According to Vinnie Mehta, director general, ACMA, the government should come up with a technology-agnostic road map for the development of sustainable mobility solutions for the future.
“As of now there is uncertainty among component manufacturers as to how their business will be impacted with the advent of electric vehicles. A coherent policy framework is the need of the hour,” Mehta said.
The long-term investment in the automobile component industry means a period of five years and some manufacturers of rubber tubes, air filters and pistons are in a quandary over whether to go in for improving their manufacturing capacities or not.
“People in the industry are definitely apprehensive of investing more since there is no clear road map. Though by 2030 the ICE engines would also substantially grow, the focus of the car maker would change to EVs. It will be a game changer in terms of technology, so if you are making an engine or its spare parts now then you’ve got to be feeling threatened for the long-term future,” said a top executive of a major component manufacturing company.
But some are ready for the challenge.
Mahindra Group’s auto component arm Mahindra CIE Automotive Ltd “is prepared for the EV drive and will continue to watch the trend,” according to its chairman Hemant Luthra.
Almost 9% of Mahindra CIE’s components in India go into ICEs, while the global share is 19%.
“There has been an internal realization that these shares must be reduced,” said Luthra, adding that the government’s announcement has alerted the firm to channel research and development (R&D) efforts towards EVs.
“It has also made us sensitive to the fact that our acquisitions should not be overly dependent on IC Engines,” he added.
The Mumbai-based automobile manufacturer is a “strong supporter of electrification, and has the engineering talent and R&D capability to design EV components,” according to Luthra. “Not much capacity addition is required since existing machining systems can address EV requirements; besides, it doesn’t make sense to put up a production line solely for EVs, given the low volumes,” he added.
Manav Kapur, executive director Steelbird International Ltd, New Delhi-based rubber and filter component manufacturer, thinks that the auto component industry is headed for total disruption with the impending changeover.
“With the reduced complexity, a very limited number of components and low maintenance cost of the EVs, the number of jobs lost could be as high as 80% at the auto components manufacturers and automotive workshops level,” said Kapur.
Analysts say a lot of the apprehensions are unfounded because the demand for IC engine-run vehicles will grow in the next decade-and-a-half despite a shift to electric vehicles. In order to cater to the demand, component manufacturers will have to invest in their existing business and increase capacity.
For example Maruti Suzuki has told its vendors to increase their respective capacities in Gujarat in the near term since the company is looking at a target of selling 2.5 million vehicles by 2025. In that case, the component manufacturers will have to invest more.
Anurag Mehrotra, managing director, Ford India Pvt. Ltd, said that full electrification will not happen in the near future and that IC engines are going to be in the play. Besides, there will be export opportunities for component manufacturers. In the last twelve to eighteen months, there has been some aggressive positioning by Indian automotive companies for exports.
A senior industry executive said the automobile industry, unlike the electronics manufacturing industry, has not re-invented itself in the past two decades, which is why the prospects of disruption is making it jittery.
For some manufacturers, the emergence of electric vehicles as a category will provide new avenues where they can explore new opportunities.
According to Vivek Chaand Sehgal, chairman, Samvardhana Motherson Group, a Noida-based auto component manufacturer, whether it is the core business or readying for technology- driven innovations like connected cars, electrification of vehicles or light weighting, the concentration is on providing solutions that customers need.
“Towards this, there is a three-pronged approach—to do things within the group, to join hands with partners through joint ventures or explore acquisitions, all of them leading back to the philosophy of providing solutions when the customer needs it,” added Sehgal.
Indian component manufacturers have to collaborate with companies who have the requisite technologies and embrace them, or run the risk of losing their turf, especially to Chinese companies, according to the ACMA presentation to NITI Aayog.
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