Electric mobility is the new mantra these days. Caught in its current is automotive components industry too, which is, instead of resting on its laurels – it registered a growth rate of 18.3 per cent in FY2017-18; the year witnessed an upswing in the overall performance of the vehicle industry, despite it facing several regulatory challenges, according to a report by Automotive Component Manufacturers Association – pushing itself to get ready for electric mobility. The gradual transition from internal combustion engine (ICE) vehicles to electric has already begun, which will eventually give rise to a different product mix. This transition augurs both challenges and opportunities.
“Companies in the ancillary sector are now transitioning smoothly and positioning themselves as the providers of electric mobility technology. While it will be challenging in the initial stage, the market holds huge opportunity for everyone,” says Akshaye Barbuddhe, business head of Delta Electronics, a global provider of power and thermal management solutions. That electric-mobility spells opportunity is something that Ashish Modani, assistant vicepresident at credit rating agency ICRA, subscribes to too. According to him, “Indian auto ancillaries are exploring opportunities either through technical tie-ups or capitalising on existing product portfolio. For instance, casting players are developing battery housing and motor components. However, overall readiness remains stumpy as the focus is primarily towards opportunity in BS VI transition which is imminent from April 2020.”
Original equipment manufacturers (OEM) like Hyundai have started a dialogue with component manufacturers for e-components, while Ashok Leyland, which has already launched electric bus partnering with SUN Mobility, is also developing battery-swapping technology for cars, buses and trucks with them. “Considering the pace at which the EV market in India is growing, there is still time and opportunities for such businesses to build new capabilities, revise their product portfolio and to invest in research and development,” says Harshid Sridhar, senior research engineer, Center for Study of Science, Technology & Policy (CSSTP), a research organisation.
But the change is not without its shortcomings too. Electric vehicle is fundamentally different than the traditional ones. It has fewer spare parts than a conventional combustion engine-powered vehicles. This is going to pose a huge distress to the components industry, says Barbuddhe. With the introduction of EV, there will be a shift from engine management, fuel efficiency and emission control to batteries and drive motors. “Engine parts and drive transmission are the segments that will be impacted negatively,” says Barbuddhe.
The heart of the e-vehicle is battery, which is expensive and still not manufactured in India. The charging stations are almost non-existent. OEMs may prefer to have their own batteries or even set-up stand-alone facilities for charging. The mid-sized industry segment will witness a significant drop in the conventional and transmission components. Engine and drive train related component suppliers will be worst hit by the transformation while new opportunities will emerge in EV parts such as battery, motors, controllers and microprocessors. “The existing players will have to deal with new entrants in the industry such as technology companies and battery producers. While the large players will have the potential to adapt to the changing requirements, the real challenge will be for the small players,” argues Sridhar V, partner and practice leader at Grant Thornton India LLP. Further, some OEMs might also lose their control over the market since EVs have fewer moving parts and are less complex than ICE vehicles with the battery constituting about 50 per cent of their cost, Sridhar adds. The challenge will also lie in making technological improvements in the production line so as to remain relevant. "Presently, India lacks a full-fledged EV eco-system and a push from the government is required to set the tone for the transformation,” says Sridhar.
Many factories have decades-old machines still running. “The old factories will not only have to deal with the transition but also face severe competition from the new players in the industry,” says Ninad Deshpande, head of marketing, India, at B&R Industrial Automation, an automation equipment manufacturing company. Existing industries and machine builders are now working on adapting technologies to make their machines and factories smart as well as on updating their machine design to incorporate newer systems. It is a two-fold task and needs simultaneous attention, Deshpande warns. He also says the ancillary industries and the suppliers from tier-2 cities need to get ready. “Incorporating new technologies provides manufacturers with competitive advantage in this evolving market. Nevertheless, basic challenges in design changes include effort, time and investment. Machine builders have to bear immense costs, lost time and opportunity in case designs go wrong. Unfortunately, such errors are identified only after the completion of the task, during testing,” adds Deshpande.
Local technology & infrastructure upgradation
To encourage people to go for EVs, the availability of user-friendly charging infrastructure is vital. This will help change the Indian consumer’s approach towards EV. A joint report of Assocham and global advisory services firm Ernst & Young said that by 2020, EV sales in India is expected to witness a double-digit growth. Currently, the industry is in a nascent stage in India comprising less than one per cent of the total vehicle sales. “But the figures will change soon with more focus being laid on local availability of EV charging infrastructure. It’s time that we unfold new technologies to drive the automobile sector and transform the face of Indian automotive industry,” says Barbuddhe of Delta Electronics.
Barbuddhe also argues that a one-size-fits-all solution will not work in India. Hence, encouraging the involvement of local manufacturers and automotive component supplier fraternity will boost the growth of the sector. With EVs, India will be moving away from the ICE-based eco-system to an eco-system that thrives on electric drive and power-electronics. In this context, impetus should be laid on indigenous manufacturing. This would foster knowledge development, jobs creation and India specific innovations, says Sridhar of CSSTP.
Charging infrastructure is one of the key bottlenecks for electric vehicle adoption. However, various power suppliers like Tata Power, NTPC as well as third-party charging infrastructure suppliers are pumping in money to develop charging infrastructure network. “In order to address range anxiety concern, players like SUN Mobility are working on battery swapping technology which could find acceptance in public transport (intra-city buses) network,” says Modani of ICRA.
Government is keen on building infrastructure, says Deshpande of B&R Industrial Automation. Global players in automation, electrification and various other segments are helping government realise the electric vehicles project. They have already helped them setup charging stations. In the future, you will only see more of these stations to provide better and efficient infrastructure, Deshpande adds.
But Sridhar of the advisory firm, Grant Thornton, says there are some real challenges to local technology and infrastructure upgradation. According to him too creation of a robust charging infrastructure is a major bottleneck for adoption of the electric vehicle at a large scale. The challenges with respect to this, he points out, are multifold, such as the availability of land and government clearances, cost of setting up the charging stations as well as maintaining the stations and adequate supply of electricity for these stations. For instance, the cab company Ola commenced a pilot project to test a fleet of EVs in Nagpur with an initial investment of $8 million in 2017. However, the project hit a roadblock nine months later as drivers were infuriated with practical difficulties such as long queues at the charging stations, higher charging time, etc. Ola planned to set up 50 charging points (for its fleet of 200 EVs) throughout the city which had about 2.5 million people. However, only 12 stations were set up and one of the stations was forced to close after protests by angry residents due to traffic jams caused by drivers in the areas surrounding charging stations.
Analysts estimate that if India wants to have a million electric vehicles sold every year, it will need to build at least one public charging station for every fourth vehicle and one in every fifth charging station will need to be a supercharger capable of fully charging a vehicle in under an hour, Sridar says. Given the population size of India, this would mean 1,000s of charging stations translating into a huge cost for the government.
The buck doesn’t stop with the availability of batteries and charging infrastructure – for the successful implementation of EVs, ensuring adequate and quality power supply is another challenge. India would need to build several power plants to ensure that charging stations have ample power to charge EVs. However, with the present priority being to ensure that all rural areas are electrified, EVs may be overlooked, argues Sridhar.
The road head
In a conventional ICE vehicle, engine and transmission components accounted for about 30-40 per cent of material cost which will come under threat from EV adoption. “Components suppliers such as suspensions, interiors, lighting, will remain largely unaffected by a shift towards EVs. Casting and forging companies who are currently supplying components for engine and gearboxes will start exploring other options like electric motor housing, electric drive components, forged wheels,” predicts Modani of ICRA. Moreover, tractor, construction equipment and M&HCV goods carrier will continue to operate on conventional engine providing enough opportunity for Indian foundries and forging suppliers. Automotive OEMs, as well as their vendors, will have to adapt themselves to the rapidly evolving environment to sustain their position in the highly competitive market.
With policies claiming that all passenger vehicles sold by 2030 will be EV driven, a greater focus on enabling the framework for EVs comes into play. With government getting in talks with state-run power companies like NTPC and Power Grid Corporation to set up charging stations along identified routes and in large metropolitan cities, 56 OEM for automobiles have registered themselves as EV manufacturers, according to SMEV, an association representing Indian manufacturers of electric vehicles. “The creation of charging infrastructure must go hand-in-hand with EV volume growth. With the growth in infrastructure, there would be an aggressive growth in the demand for electric vehicles, resulting in greater procurement. Thus, price point will come down significantly,” states Barbuddhe of Delta.
EV vision often assumes that batteries will be available in plenty at unprecedented low-price points. That may not be the case, feels Barbuddhe. But according to him storage technologies with better energy density, specially designed for mobile applications, will make the investment cycles long, making it value for money. This can be an opportunity for industry players to break traditional boundaries and collaborate with one another to create viable businesses.
While charging infrastructure plays a key role in accelerating the adoption of electric vehicles, it is also important to note that it is not the only driver. Higher initial costs and lack of variety in vehicle models are also responsible for low demand. “Municipal corporations need to play a proactive role and we need to develop innovative business models, feels Sridhar of CTEP.
For a customer, the concern when it comes to EVs primarily include its high price and battery replacement cost. “There are a couple of other downsides with respect to usage of EVs at present. First is the limited drive range on a full charge and second is the high charging time for the battery. If the car manufacturers are able to work around these factors, then electric vehicle could be the ideal mobility solution for the future,” points out Sridhar of Grant Thornton. If done right, it would encompass a low running cost and leave a lower carbon footprint in the environment, adds Sridhar.
At a macro level, transitioning to electric vehicle post bigger challenges especially with regard to the batteries which accounts for more than 50 per cent of the total cost. “While the cost of batteries has been falling over the years, it must come down further in order to be a cost-effective alternative to ICE vehicles,” Sridhar adds. And herein lies biggest opportunity to automotive components industry. If they manage to successfully adapt to EVs, it will only result in low cost vehicles. This will surely spike the demand for EVs.