The electric vehicle segment provides both an opportunity and a challenge for the Indian component industry. On one hand, there is the challenge of many of traditional IC-vehicle parts to become obsolete in the EV space, but on the other hand, new product demand could fuel growth for the nascent industry.
According to a report by Crisil, the EV share in auto components is likely to reach 9-11 per cent by fiscal 2027 from the present 1 per cent. This at a compound annual growth rate of around 76 per cent will touch Rs 72,500 crore in fiscal 2027 from Rs 4,300 crore last fiscal. It predicts that this will happen in addition to the supply of parts for internal combustion engine (ICE)-driven vehicles also rises.
Pushan Sharma, Director, Crisil Research said, “Improving cost viability of EVs versus ICE vehicles, and rising consumer demand for environmentally cleaner mobility will drive the transition to EVs. Among the key auto segments, two-wheelers and passenger vehicles are seen driving the transition, with their penetration rising to 19 per cent (from around 2.5% currently) and 7 per cent (from less than 1% currently), respectively, over the next five fiscals. Commercial vehicles, the other large auto segment, will see far lower penetration at around 3 per cent (0.3% currently) because of unfavourable economics.”
The study based on an analysis of 220 suppliers who together account for one-third of the auto component market says that the transition to EVs will create both opportunities and challenges.
Naveen Vaidyanathan, director, Crisil Ratings, “EV components such as batteries (60% of EV component revenue by fiscal 2027), drivetrains (15%), electronics (15%) and others (10%) present an opportunity for auto component makers to diversify their revenue base beyond ICE vehicles. Companies are already investing in developing electric components, both with established ICE original equipment manufacturers (OEMs) and with new-age pureplay EV makers. Almost 90% of the EV component supplies will be for two-wheelers and PVs.”
At present, for the traditional auto component suppliers about 75 per cent revenue comes from body parts, chassis, suspension, electrical, braking, lighting, and seating. These will be required for EVs too, so growth is unlikely to be a challenge for such suppliers. While companies may need to partially re-engineer products for EVs, they will be able to do so with incremental investments.
Crisil says it is the balance approx. 25 per cent of auto component supplies catering specifically to ICE engines and transmission components that could face challenges due to the EV transition. These include parts such as starters, alternators, fuel injectors, radiators, gearbox, clutch, pistons, cylindrical block and exhaust system critical in an ICE vehicle but redundant in EVs.
It finds that in this too the transition will be faster in two-wheelers and component makers with concentrated exposure to the segment will be more at risk compared with others supplying to PVs or CVs. “To illustrate, engine and transmission component makers supplying majorly to two-wheelers account for only about 6 per cent of the revenue of auto component companies rated by CRISL Ratings,” states the report.
Interestingly, majority of the auto component makers (~50 per cent) cater to multiple end-segments. Companies are also looking to de-risk their models by supplying EV components and increasing non-auto and industrial products in their portfolio.
All said, given the pace of transition to EVs, individual companies could gain or lose disproportionately depending on their product portfolio, customer mix, ability to reengineer, and balance sheet strength. These would be monitorable in the road ahead.