EV shift reshapes auto components industry

The rise of electric vehicles is transforming the auto component industry by increasing content per vehicle and creating new opportunities for suppliers, especially in EV-specific parts like batteries and controllers. However, the shift also poses risks to manufacturers reliant on ICE components and faces challenges such as import dependency and global market pressures.

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The transition to electric vehicles (EVs) is set to significantly transform the auto component industry by increasing the content per vehicle and offering new growth opportunities for suppliers, according to a recent report by Ambit Capital.

The report noted that while this shift presents a clear threat to manufacturers relying heavily on internal combustion engine (ICE) components, it also brings notable prospects. “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,” the report stated. It added that component makers have the potential to diversify into EV-focused parts such as lithium-ion batteries, traction motors, controllers, and battery management systems (BMS).

Beyond core EV parts, the rise of electric mobility is also pushing forward the adoption of sophisticated technologies such as regenerative braking, advanced driver-assistance systems (ADAS), and smart cockpit solutions. These advancements are expected to enhance the strategic role of component suppliers within the automotive value chain.

Another area of opportunity lies in the growing demand for specific components driven by EV architecture. Parts like wiring harnesses, electronic control units (ECUs), and differential assemblies are projected to see a rise in content per vehicle compared to conventional ICE models.

In terms of market outlook, EV penetration in India is anticipated to rise steadily over the next few years. The electric two-wheeler (2W) segment is expected to grow from 6.3% in FY25 to 21% by FY29. Similarly, electric passenger vehicles (PVs) are projected to increase from 2.6% to 10.4% during the same period. The most rapid adoption is forecasted in the electric three-wheeler (3W) segment, which is estimated to surge from 22.9% in FY25 to nearly 68% by FY29.

However, the report also sounded a note of caution. It emphasized that a significant portion of EV components is still being imported, which could result in intense competition in the early stages of this transition. This reliance on imports may challenge local suppliers as they try to establish their presence in the EV ecosystem.

Despite the promising outlook, the EV shift poses critical risks for certain suppliers. Those whose business models are heavily dependent on ICE engines and select transmission components may face existential challenges if they fail to adapt.

In addition to domestic challenges, global headwinds could affect the Indian auto components industry. The report highlighted three external risks: the US-Mexico-Canada Agreement (USMCA)/tariff regime, economic slowdown in the European Union, and increasing competition from Chinese manufacturers. As Indian component suppliers rely significantly on exports to the US and EU, these factors could put pressure on their financial performance in the near future.