By Swapnil Jain
An evolving global electric mobility ecosystem will in all likelihood re-script how automobiles will be made in the coming decades. The paradigm shift will be from a multi-tiered outsourcing model to a vertically designed integrated one, where vehicle manufacturers or OEMs will be taking full ownership of performance and cost of all the sub-systems that come together to produce a vehicle. This change also presents a historic opportunity for a country like India to grab a big chunk of the global automobile market in the long run.
There is a lot to unpack here, but before we do that let us first look at how the clean mobility segment is set to replace ICE (internal combustion engine) automobiles as the preferred choice among vehicle owners around the world.
The International Energy Agency, a global energy think-tank, expects more than 40 million electric cars to be sold in 2030, up from 14 million sold in 2023, accounting for 18% of the global sales now. In terms of volumes, the Indian automobile market, even though it is acutely skewed in favour of two-wheelers, will also embrace electric mobility in greater numbers in the coming years and decades.
ICE in a stable environment
OEMs globally and India, for several decades now, have largely relied on their suppliers or vendors to design and deliver components for subsystems such as drive train, steering system, braking system, suspension, electrical, ignition, etc. This model works really well when the architecture is largely stable and the entire industry has converged onto one architecture. It relies mostly on incremental improvements.
EVs in a dynamic setting
This changes in case of EVs as EV makers are constantly rewriting their vehicle architecture and the building blocks that go into the vehicles. Third party vendors will be unable to keep up with the changes for several reasons, the main one being rapidly changing designs needing high R&D investments and the lack of incentive to invest in R&D to keep costs down. This is more evident in the EV segment because the volumes at the current level are not big enough to do so and this is particularly true in a market in India where EVs account for just around 7 percent of all new vehicles sold.
Vertical design integration model
The solution for EV OEMs therefore is to start investing in vertical design integration, meaning in their own R&D, including the physical infrastructure (labs, testing and proving grounds etc.) and human capital. The sub-systems can still be manufactured by vendors, but the design and development has to happen with the OEM.
The added advantage of vertical integration in design is that OEMs can rapidly iterate on the architecture itself without getting restricted by the limitation of individual Tier 1s. For example, the vehicle control unit in our scooters which used to be one big box had to be split into two units to optimise performance and cost, something we figured out how to do ourselves, and this expertise helped us save as much as 20 percent of its cost. Similarly, at one point we were buying motor controllers at 1.7x the cost of what it is today until we decided to redesign it ourselves.
Cost reduction at the design stage
The vertical design integration model works on the premise that in the automobile industry value chain, the biggest opportunity to reduce cost is at the design stage and not so much in manufacturing. This shift is turning the time-tested outsourcing model on its head by forcing OEMs to embrace the vertical design integration model in order to remain cost-competitive even as they continue to improve performance and quality of their vehicles.
This change, of course, has to start right at the top and that means redefining the culture and building a vision that will nurture this change. Promoters/investors, founders and senior leadership have to drive this change by starting to believe that they can “engineer” this change from within. We also need to invest in people by hiring managers and team members who are passionate about solving engineering challenges and they in turn will have to be empowered with access to the best technologies, labs etc. In short, we have to drastically increase investment in R&D and people.
Indian engineers don’t think in terms of design
Even though India has a very rich engineering education ecosystem, our engineers are not trained to think in terms of design. From an OEM’s point of view design is not only about physics, but it is also about cost, manufacturing and serviceability, factors that are important for business but not taught in our engineering schools. We need more engineers who can design and innovate.
Even though electric mobility has been ushered in as part of our larger battle against climate change, it is also presenting a rare opportunity for a country like India to become a global supplier of clean mobility solutions. For that to happen we have to look beyond cost-competitive manufacturing and turn our attention to vertical design integration and make it the driving principle for building our future automotive industry.
(The author is co-founder and Chief Technology Officer, Ather Energy.)
Views are personal and do not represent the stand of this publication.
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