Auto component industry clocks $56.5-bn topline in FY22, aims for enhanced focus on EV parts

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Despite being hamstrung by shortage of semiconductors and surging input costs, the turnover of the automotive components industry witnessed a 23 percent growth at Rs 4.20 lakh crore ($56.5 billion, as per current rates) for the period April 2021 to March 2022, vis-à-vis Rs 3.40 lakh crore ($45.9 billion) earned in the corresponding period of FY21. The auto parts industry also outpaced its highest-ever turnover of Rs 3.95 lakh crore ($57.1 billon as per prevalent exchange rates) in FY19.

This was revealed by Automotive Component Manufacturers Association of India (ACMA) from the findings of its Industry Performance Review for fiscal year 2021-22.

Commenting on the performance of the auto components industry, Vinnie Mehta, Director General, ACMA, said, “The first half of last financial year saw quite a few challenges in supply chain. We had challenges on the fronts of semiconductors, supply chain disruptions, higher raw material costs, availability of containers, and logistics cost. Despite all this, the industry registered a 23 percent growth.” He maintained that while some of the issues have softened a bit, the industry is still not out of the woods.

Growth drivers

While elucidating on key growth drivers, Mehta revealed, “Also, what led to the growth were the regulatory issues and a lot of value addition that the component industry has started to do. We have seen that there is a shift by consumers to larger and powerful vehicles like SUVs. Also, in the CV segment, there is a steady rise in the consumption of medium and heavy commercial vehicles (M&HCVs). So, all these lead to better growth in performance of the industry.”

During FY2022, automotive parts exports grew by 43 per cent to Rs 1.41 lakh crore ($19 billion), while imports grew by 33 percent to Rs 1.36 lakh crore ($18.3 billion), leading to a trade surplus of $700 million. The aftermarket, estimated at Rs 74,203 crore also witnessed a steady growth of 15 per cent. Component sales to OEMs in the domestic market grew by 22 per cent to Rs 3.41 lakh crore.”

Elaborating on the mood of the industry and outlook for the near future, Kapur said, “Going forward, with a slew of new launches, vehicle sales are expected to gain traction during the festival season. Further, increased focus by the auto industry on deep-localisation and the announcements of the PLI schemes by the Government on Advanced Chemistry Cell (ACC) Batteries and Auto & Auto Components will facilitate the creation of a state-of-the-art automotive value chain and aid in developing India into an attractive alternative source of high-end auto components.”

 Domestic component industry is transforming

Meanwhile, ACMA also maintained that the domestic component industry is transforming itself as sales of two-wheeler and three-wheeler electric vehicles (EVs) gain traction. During the presentation, it was revealed that the industry supplied Rs 3,520 crore worth of components to the EV makers which is roughly about 1 percent of the sales made to the original equipment manufacturers (OEMs) at Rs 3.4 lakh crore. Without giving any growth projections, the industry body stated that there will be some headroom for standalone component makers in the EV manufacturing space even though some manufacturers are vertically integrated.

“Even though our industry earns a sizeable sum from supplying engine and transmission components for internal combustion engines (ICE), the EV growth will not majorly impact the traditional players. Seventy percent of the components will remain the same. While many parts like mirrors, seats, dashboard, brakes, etc., will still exist, those supplying parts for engines will adapt and evolve themselves. This is really dependent on the growth that happens in OEMs,” added Kapur. In his view, there is a good opportunity for players to put up electric charging stations.

Growth in EV component sales

Interestingly, CRISIL in its recent surveyed report claimed that revenue for EV components is likely to rev up at a compound annual growth rate (CAGR) of around 76 per cent to Rs 72,500 crore in fiscal 2027, up from Rs 4,300 crore last fiscal, claims CRISIL. That will take the share of EVs in the overall automotive components market to 9-11 percent in 5 years — up from a negligible 1 percent currently, as per CRISIL.

The ratings agency claims that this growth will come even as the supply of parts for the conventional internal combustion engine-driven vehicles will also grow during the period.

“Improving cost viability of EVs versus ICE vehicles, and rising consumer demand for cleaner mobility will drive the transition to EVs. Among the key auto segments, two-wheelers and passenger vehicles (PVs) are seen driving the transition, with their penetration rising to 19 percent (from ~2.5 percent currently) and 7 percent (from less than 1 percent currently), respectively, over the next five fiscals,” stated Pushan Sharma, Director at CRISIL Ratings. However, he maintained that commercial vehicles (CVs) will see far lower penetration at around 3 per cent (0.3 per cent currently).

 Battery play

CRISIL also predicts that as much as 60 per cent of this revenue is expected to be derived from the battery segment and 15 per cent each from drivetrains and electronics, with 90 per cent of the EV component supplies likely to be for two-wheelers and PV segments.

"EV components such as batteries, drivetrains, electronics and others 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 OEMs and with new-age, pure-play EV makers," said Naveen Vaidyanathan, Director at CRISIL Ratings.

The transition to EVs will create both, opportunities and challenges, for domestic auto component makers, indicates a CRISIL analysis of 220 manufacturers, which account for a third of the auto components market.