New Technologies To Drive Indian Auto Parts Industry

By Pramod Thomas:

India’s $51 billion auto component industry has been having a robust year-on-year growth over the past four years. Last year it grew by 18 percent. Still exports at $13.5 billion accounts for only 3.5 percent of the world market of $386 billion. With the emergence of connected and intelligent mobility new growth opportunities are opening for the auto component industry both in the domestic and in the world markets. The 58th Annual Session of Automotive Component Manufacturers Association of India (ACMA), the apex body of the Auto Component Industry in India, held in New Delhi on September 5, 2018, discussed in detail about the future of the Industry and the new markets. The component industry was asked by the automakers to invest on alternative technologies more judiciously and be relevant in the new markets.
Indian Minister for Heavy Industries and Public Sector Enterprises, Anant Geete, who inaugurated the ACMA event, said that the automotive industry is the top contributor to India’s Make in India initiative and has accounted for the maximum investments under the programme.
“Going forward, we would be framing the auto policy in accordance with the current state of the automotive industry and demands of the future. I assure that the Ministry of Heavy Industries will support the industry to resolve all issues and concerns,” he said.
The Minister released a study conducted for ACMA by McKinsey & Co, a consultancy, ‘Auto component industry in India: Preparing for the future.’ The study finds big opportunities for the Indian auto component industry in the growing vehicle demand and the introduction of next generation mobility.
The Autonomous, Connected, Electric and Shared (ACES) mobility will impact the dynamics of the Indian automotive industry and the opportunities in this space are contingent to Indian auto component industry scaling up on the technology front.
According to the study, the future of the auto OEMs and auto component industry is being shaped by multiple trends, policies, technologies and discontinuities. It talked about the opportunities these trends create for the auto component industry and how the industry can prepare itself to capture a share of them.
Nirmal Minda, President, ACMA, said that “the auto and auto component industry, globally and in India, is undergoing a transformation across its entire supply chain; several factors such as new regulations on emission, safety and environment, fast changing customer preferences, shifting economic dynamics and trade policies are reshaping our industry. Electric mobility is fast catching the imagination of our policy makers; a definite policy delineating the road map for e-mobility in India is the need of the hour. We are confident that as hybrid and electric technologies gain traction, vehicle manufacturers will support localisation of components.”
Guenter Butschek, CEO and MD, Tata Motors, said that auto Industry is undergoing a silent transformation in terms of changing consumer, intensifying competition and evolving ecosystem. “The auto component industry needs to be Engineering ready, Tech ready and Business ready. The OEMs and component industry need to tap the opportunity jointly. One of the starting points of innovation is the discovery of pain areas such as road safety, pollution, and fuel costs. Factors such as greater thrust on time to market, best-in-class quality, best value proposition and close consumer connect will bring in success. Emerging business models like connected vehicle and mobility as a Service, big data analytics/ IoT/ digital mindset shifts, cultural transformation are the advantages that the component industry can tap,” he said.
Maruti Suzuki MD Kenichi Ayukawa urged component manufacturers to gear up for multi-location facilities and to align investments accordingly. He said that the auto makers in the country will have to build factories nationwide, including at new untapped regions, to diversify their production bases and meet an expected more than threefold surge in sales by 2030. If the Indian economy grows by 8-9 percent annually, the corresponding growth in the passenger vehicle industry will be 10 million units a year by 2030 from about 3.2 million units now, Ayukawa said.
India’s automotive industry is mainly dominated by the hubs at Gurugram and Manesar in Haryana, Gujarat, Mahararshtra (Pune) , and Tamil Nadu (Chennai), with pockets of automotive manufacturing presence in Rajasthan, Uttar Pradesh and Andhra Pradesh.
“Even if we look at a small EV penetration by 2030, still a large volume of (internal combustion) engines will need some form of electrification. Efforts are needed to set up a complete ecosystem from procurement of raw materials to charging infrastructure and recycling of the batteries. Similarly, connected cars will require special infrastructure at another level. The mother ITIs and local ITIs in India should be upgraded as centres of excellence for massive skill development initiatives. The National Council on Vocational Training (NCVT) syllabus needs to be changed to accommodate technology changes. When new policy norms come into effect the players should look at cost competitiveness. The approach of India has to be energy neutral in the long run,” Ayukawa said.
He urged the government to announce a comprehensive scrappage policy.
Dr Abhay Firodia, President SIAM, and Chairman, Force Motors, said that the rate of change in the auto industry is going to be faster than in the past with the advent of technology. Connected, intelligent transportation is happening and it is high-time we made use of this opportunity, he said.
Rakesh Bharti Mittal, President of CII, and Executive Vice Chairman, Bharti Enterprises, said the world tariff war provides good opportunity for auto component companies in India to increase market share. “The distinction between manufacturing and services is reduced now. Automotive software is a big potential area which can be tapped by Indian companies. There are opportunities in new mobility such as Aerospace, Defence and Railways.”
IC Engines To Stay
Dr. Pawan Goenka, Managing Director, Mahindra & Mahindra, said that disruption like never before is happening in the automotive industry with regard to safer, cleaner, connected and intelligent vehicles. Though the industry will witness more electric vehicle penetration by 2030, the Internal Combustion Engine would not die as there is enough room to grow by seven percent in the industry, he said.
“Regulatory environment will remain aggressive. The key will be to make engines efficient and clean. Light-weighting of vehicles by using design optimisation processes and materials would take place. Now 80 percent of the profit is shared between OEMs and suppliers. By 2030, the profit margin will be reduced by 60 percent. Companies would be forced to set up local shops. Technology will be the name of the game, and Intellectual Property Rights will define competitive advantage. Start-ups will create new business models. The industry should adopt qualities such as agility, risk-taking and aggression from the start-up culture,” Goenka said.
He opined that the four-year product development window will go in the future and the companies will have to do it in months going forward.
Speaking at the panel discussion on ‘Auto Component Industry in India- Preparing for the Future’, Asutosh Padhi, Senior Partner, McKinsey & Company, said that even with 30 percent penetration for electric vehicles in the country, IC Engines will register 2x growth by 2026. He pointed out that connectivity, electrification and ride-sharing are the key trends in the automotive space.
Minoru Kato, President and CEO, Honda Motorcycle and Scooter India, said that the auto component industry should be self-sufficient in new technologies going forward.
“The industry needs to embrace technology, quality and competitiveness in order to create value. India accounts for 30 percent of the global two-wheeler sales for Honda. In 2001, we had 55,000 customers and the number stands at 37 million now. We have invested Rs 9800 crore in India so far, and we have done 97 percent localisation in the country. Currently, our focus areas are mobility, robotics and energy,” he said.
CV Raman, Senior Executive Director, Maruti Suzuki India, said that EV is definitely going to come whether anyone likes it or not. When we look at hybridization and electrification, component industry should come up with specific solutions.
Alternative Fuel
The Indian Minister for Road Transport and Highways, Nitin Gadkari, said that the government has been promoting alternative fuel in a big way and urged the industry to support those initiatives.
“The government is working towards various kinds of alternative fuels as an effort to reduce carbon footprint by introducing first generation bio-ethanol. The government also mulls producing aviation bio-fuel from non-edible seeds, which is available in abundance in the North-East region of the country. Pilot projects are being carried out in Pune, Mumbai and Guwahathi for using methanol as fuel in buses. We are also exploring possibilities of using ethanol in shipping as well. The industry should come forward to develop the technologies to power the new generation engines,” the Minister said. Gadkari revealed that the government is formulating a policy to substitute imported goods with domestic products.
“The motive of our government has always been to reduce import of goods and reduce pollution levels and the automobile industry alone can contribute to both the manufacturing and service industry. This industry still contributes majorly in increasing exports. The automotive industry is always in need of more subsidies than what has been given. The industry now has to invest in research and development of new technologies and I would request car makers and suppliers to make use of our rivers while transporting their vehicles and other goods. I am pleased to see the auto component industry perform remarkably in turnover and exports. I believe there are immense possibilities for this sector to grow further. Our government is driving the agenda of promoting Innovation, entrepreneurship, technology and research,” he said.
In his address, Suresh Prabhu, Union minister for Commerce and Aviation, said that the Indian government is coming up with a new industrial policy to ensure that we are part of the global value chain.
“The government is trying to increase exports to Africa and South America. We are promoting exports in a big way and our exports have grown in the last fiscal, despite global headwinds. We have a concrete action plan to increase exports in the African countries where only eight percent of the total exports are headed at present. The auto component industry should tap these countries as this industry already exports on a large scale,” Prabhu said.
He assured that whenever the country signs a Free Trade Agreement, the interests of the auto component industry will be protected.
Mega Trends
The event highlighted four mega trends that shape the auto component industry. They are:
1. Constantly shifting market dynamics due to changing customer demands, manufacturing locales, operating models and priorities.
2. The changing needs of OEMs, that are likely to want different, more agile and rapid component inputs as demand, timelines and processes keep shifting.
3. Technological improvements and discontinuities that are already starting to change revenue pools, trigger new competition and invite new forms of cooperation.
4. An evolving regulatory and trade environment forming the backdrop for it all.
Speaking at the panel discussion, Shivanshu Gupta, Partner, McKinsey and Company, said that the rate of change is rapid which is impeding the localisation efforts of the industry.
Sandeep Sinha, Managing Director, Cummins India was of the opinion that opportunities in the sector will grow and the supply base would widen.
Vikram Kasbekar, Executive Director, Hero MotorCorp, said that component makers should look proactively at export markets with specific designs.

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