Home Articles Auto Components Industry: Get Set For Disruption

Auto Components Industry: Get Set For Disruption

Auto Components Industry: Get Set For Disruption

The Indian auto industry accounts for 7.1 percent of the country’s GDP and is poised to become fourth largest auto market globally by 2020 after China, the US and Japan. Changing market dynamics – such as pick-up in electric vehicles (EV) sales, digitization and connectivity – accompanied with implementation of stringent government regulations (to reduce emission and
carbon footprint) are causing disruptions across auto and auto components industry. The auto component industry’s performance largely depends upon the growth of OEMs and after-market demand.

While OEMs segment accounts for 80 per cent of the total auto component demand, the remaining 20 per cent comes from replacement/after-market segment. Organised segment, comprising over 700 component suppliers, accounts for around 85 per cent of the total turnover of Indian auto component industry. The remaining 15 per cent is contributed by the unorganised sector that consists of over 10,000 players. The Indian auto component industry, which contributes about 2 per cent ofIndia’s GDP, registered a turnover of $ 43.55 billion in 2016-17, registering a CAGR of 11 per cent over a period of six year. The auto component industry is expected to continue its strong run in FY2018 and grow at 13 per cent, riding on the high volume growth experienced across various automotive segments. Governments around the world are pursuing more stringent norms on emissions and fuel economy to continually improve air quality in urban areas. India too has announced the implementation of BS VI norms by 2020, which will require a significant technological jump – especially in diesel filter and selective catalytic reduction technologies.

The country will also adopt CAFE(Corporate Average Fuel Efficiency) norms requiring cars to be 30 per cent
or more fuel efficient from 2022 and 10 per cent or more between 2017 and 2021. All these factors are forcing OEMs to enhance the efficiency of internal combustion engines (ICE) by using new technology solutions.At the same time, the migration of ICE to hybrid and electric vehicle (EV) power train pose significant headwinds for auto component manufacturers. In ICE, engine parts and drive transmission & steering component segments account for 31 per cent and 19 per cent, respectively, of the Indian auto component market (by value). EV powertrains do not require engine parts and drive transmission components. This means complete shift to EVs will effectively threaten the existence of companies that supply these two sets of components – which together comprise about 50 per cent of auto component market at the present. While industry disruption poses challenges, it also creates newer opportunities for players.

The Indian auto component industry, under the Automotive Mission Plan 2016-26 (AMP 2026), is aiming to touch $ 200 billion (from current $ 43.5 billion). To achieve this humungous target, the industry needs to focus on three critical areas – R&D and technology, bridging the skill gap and globalisation – to be future-ready.

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