Indian auto component makers celebrate record profits, but future worries could spoil the party

The sector will see a sea change once electric vehicles assume centre stage

Indian auto component makers celebrate record profits Representational image | PTI

India’s auto component manufacturers are an overjoyed lot these days. At a total turnover of 5.6 lakh crore rupees for the last financial year, growth has been at its highest ever, at an impressive 32.8 per cent.

And what more, with pandemic-induced lockdowns and supply chain issues receding to the background and the impact of the Ukraine war remaining minimal, the industry has a lot to look forward — the spurt in automobile sales, customers increasingly going in for bigger and powerful models, as evinced by the SUV craze in passenger cars and the push for 250cc-plus bikes, as seen by the recent Harley Davidson and Triumph launches specifically for India.

But the distant roll of thunder threatens everyone. “We’ve had a fantastic year,” said Sunjay Kapur, president of the Automobile Components Manufacturers Association of India (ACMA) & chairman, Sona Comstar, but admitted, “We’re in the midst of a revolution.”

Kapur is, of course, referring to the electrification wave overtaking the auto industry, and the drastic pivot it is calling for from the component manufacturers.

“The industry is disrupting. The components industry will also disrupt, just like OEMs (vehicle manufacturers) are disrupting,” he said.

The question is how smartly the sector is handling the disruption, and how prepared it is for the changes that come with it. From providing a supply chain of spare parts and ancillary technologies to OEMs for making the conventional internal combustion engine (ICE), the sector will see a sea change once electric vehicles assume centre stage, as is predicted in a few years from now.

Kapur admits that, but refuses to believe that this will lead to a mass loss of jobs in the sector. “Jobs will only increase. The nature of jobs will change, not the numbers. Skilling and re-skilling therefore becomes important.”

Also, ACMA officials are of the opinion that while electric cars, with their focus on batteries could turn upside down the present delicate balance between component makers and OEMs, it needn’t be the case. With the government remaining technology-agnostic, there could be multiple technologies at play beside the ICE and EVs, from using ethanol as a blended fuel to hydrogen fuel cells as well as hybrids of various combinations.

“I don’t think the engine is going away,” Kapur was emphatic.

But there is one area he is concerned about, and that is the technology upgradation of Indian component manufacturers. “Our spend on researching and developing new technologies is only 1 per cent of turnover, while globally it is 6-7 per cent.”

Another point of consternation is that as the auto sector grows exponentially in the coming years, there would be renewed interest amongst global majors to look for mergers and acquisitions. Already, alarm bells rang throughout the components sector as Tesla told central government officials that it might bring in its trusted vendors from China to supply quality spares as and when it starts production in India.

Even while the auto sector has been trying its best to battle import dependency — the gap between imports and exports has been narrowing over the years (it even went into a 700 million dollar surplus in financial year 2022-23, before turning into a 200 million dollar surplus again in the latest financial year), but the recent trend of increasing software features, internet connectivity and all the frills in new car models has seen a spike in the demand for electronic parts, most notoriously for chipsets. “Electronic components…is a weak area for us,” pointed out Kapur.

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