India’s Auto Component Sector Sees Record Growth Amid Global Supply Chain Changes

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India’s auto component sector is on the cusp of becoming a truly global player, a transformation that has been a decade in the making but has only gained momentum in the last two to three years, especially post-COVID-19. This change has been catalyzed by the reconfiguration of global automotive supply chains, shifting away from Europe and China towards Southeast Asia and India.

Several factors have contributed to this shift: pandemic-induced chip shortages, the US-China trade war, the Russia-Ukraine conflict, and the ongoing Israel-Palestine tensions. As supply chains are restructured, Indian auto component manufacturers are witnessing unprecedented export orders and are expanding capacities to meet rising global demand.

According to analysts at brokerage Motilal Oswal, Indian component makers are set to invest up to USD 7 billion in new capacities and technology upgrades as global demand increasingly turns towards India.

This shift in favor of Indian auto component OEMs was highlighted by Amit Kalyani, Joint Managing Director of Bharat Forge, who noted a significant increase in orders moving from China and Europe to India.

Tyre manufacturer Continental is enhancing its research and manufacturing capabilities for connected technology in India, aiming to boost exports to Europe, East Asia, and ASEAN countries. Chennai-based clutch maker Valeo plans to invest near Mahindra & Mahindra’s Pune plant and localize electric powertrain production in India.

Farm and construction equipment maker Escorts Kubota is increasing the localization of engines and parts for tractors in India, with plans for a new facility in Rajasthan with an investment of INR 4500 crore. This facility will double tractor capacity within the next three to four years. Additionally, EKL has started exporting components to Japanese partner Kubota’s facilities, which are looking to reduce reliance on Chinese parts.

Sona BLW Precision Forgings (Sona Comstar), which supplies critical systems for both electrified and non-electrified powertrains, has expanded its global footprint with a new manufacturing facility in Mexico to serve OEMs in the USA seeking alternatives to Chinese suppliers.

Analysts report that India’s auto component industry grew by over 33% in FY23, with anticipated growth in the “mid-teens” for the recently concluded fiscal year. The industry is expected to invest around USD 6.5 billion to 7.0 billion over the next five years for capacity expansion and technology upgrades, nearly doubling the investment of the past five years.

Indian component makers are poised to benefit not only from geopolitical shifts prompting global businesses to reduce reliance on China but also from European companies, particularly in Germany, looking to move due to high inflation and material costs. The success of Indian OEMs will depend on their ability to leverage cost advantages, low wage rates, and an increasing appetite for capacity building amidst this global shift.

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