New Delhi: The ongoing transition to electric vehicles (EVs) is expected to reshape the auto component industry by increasing content per vehicle and creating new avenues for suppliers, according to a recent report by Ambit Capital. However, it also highlighted that while the rise of EVs poses a threat to manufacturers dependent on internal combustion engine (ICE) components, it also unlocks significant growth opportunities.
The report said, “While EV disruption poses existential risk for the suppliers of ICE-dependent components, it opens up several opportunities for the component suppliers to provide a) EV components like li-ion batteries, traction motors, controllers, BMS, etc.”
It added that the component makers can diversify into EV-specific parts such as lithium-ion batteries, traction motors, controllers, and battery management systems (BMS).
Additionally, EVs enable the adoption of advanced technologies like regenerative braking, advanced driver-assistance systems (ADAS), and smart cockpits, further boosting the role of suppliers in the value chain.
Another advantage for component suppliers comes from increased demand for certain parts due to EV architecture. Components such as wiring harnesses, electronic control units (ECUs), and differential assemblies are expected to see greater content per vehicle compared to traditional ICE vehicles.
EV adoption in India is projected to grow gradually. Electric two-wheeler (2W) penetration is expected to rise from 6.3 per cent in FY25 to 21 per cent by FY29.
Similarly, passenger vehicle (PV) penetration is likely to grow from 2.6 per cent to 10.4 per cent during the same period. In contrast, electric three-wheelers (3Ws) are expected to witness rapid adoption, surging from 22.9 per cent in FY25 to nearly 68 per cent by FY29.
However, the report cautions that many EV components are currently imported, which may result in intense competition, especially in the early stages of the EV transition.
Despite the growth potential, the shift towards EVs also poses key risks. Suppliers heavily dependent on engine and select transmission components may face existential challenges.
The report also flagged three key challenges for the auto components industry – the USMCA/tariff regime, economic weakness in the EU, and competition from Chinese players.
As India’s auto component industry is heavily reliant on exports to the US and EU, these challenges could strain finances in the near term.