The future of mobility: Transforming to be ahead of the opportunity

The global automotive industry has demonstrated remarkable resilience over the last two years. The COVID-19 pandemic and, more recently, the war in Ukraine exacerbated the slowdown in global sales that had set in before the pandemic. However, despite near-term supply disruptions, the long-term prospects for the industry remain strong. Global sales of passenger vehicles are expected to rebound to peak levels by the middle of this decade. Along with China, emerging markets such as India will lead the way.¹Unless otherwise indicated, all figures for the automotive industry and electrification are projections by the McKinsey Center for Future Mobility, detailed in Chapter 1 of the full report.

While there is cause for optimism, the push for clean mobility and the corresponding growth in the adoption of electric vehicles (EVs) could disrupt the automotive landscape over this decade. Europe and China are expected to be frontrunners in this shift, with the rest of the world following suit eventually.

In India’s case, the total cost of ownership is likely to be more attractive for electric two- and three-wheelers²Global two-wheeler outlook 2022, Frost & Sullivan, May 12, 2022. (E2Ws, E3Ws) than for passenger or heavy commercial vehicles (PVs and HCVs). Sales of new E2Ws and E3Ws could grow to 50 percent and 70 percent, respectively, by 2030. Internal-combustion engines (ICE) will continue to dominate the Indian PV and HCV landscape, with slower electrification. Electric PVs and HCVs are expected to account for 10 to 15 percent and 5 to 10 percent of new vehicle sales, respectively, by 2030 (Exhibit 1).

1

According to early estimates, a transition to EVs could affect up to 50 percent of ICE bill of material (BOM) components, which could disrupt the portfolio of incumbents in traditional ICE component categories. This disruption could be an opportunity, too, creating multiple white spaces for companies to cater to the new EV BOM needs and generate avenues to serve markets outside India in both ICE and EV component categories. These will represent new or expanded value pools, offering additional opportunities for automotive players to diversify (Exhibit 2).

2

For Indian automotive component manufacturers to adapt to these shifts, we have outlined three broad strategy frameworks which they could customize to their unique starting points, capabilities, and challenges:

• Continuous improvement and expansion in traditional ICE play within India could be a $35 billion to $45 billion opportunity by 2030.

  • Expand across opportunities within the automotive market, for example, 2W and 3W suppliers (facing early electrification) could pivot into segments that are going to gradually electrify (such as PV and HCV).
  • Capture opportunities in automotive-like adjacent sectors, for example, construction and mining equipment, rolling stocks for railways or metros, defense sector, et cetera—all of which are growing and have a sizable market.

• A global expansion within current ICE categories could result in a $35 billion to $50 billion opportunity by 2030.

  • Expand exports on the strength of shifting supply chains as companies seek greater resilience by diversifying beyond traditional geographies. Indian companies could capture opportunities in areas where India has traditional advantages and exports are growing faster than competing suppliers from other geographies. These include categories such as forgings, castings, gearbox parts, suspension parts, axles, and wheel rims.³Based on analysis of 6-digit EXIM (HSN code) data.
  • Make the most of the global component manufacturing rebalancing opportunity due to electrification. With faster EV penetration, US and EU markets will likely lose economies of scale to locally manufacture traditional component categories (forgings, castings, et cetera) due to low demand volumes and high variety. India-based players could serve these markets, leveraging the lower-cost labor advantage.

• Innovation in newer opportunities and a global play could represent a $25 billion to $40 billion opportunity by 2030.

  • Occupy emerging white spaces in EV categories, for example, supply chain of battery cell, battery pack manufacturing, e-motor supply chain, e-axle/reducer, and electricals and electronics for EVs and charging infrastructure.
  • Expand into downstream service use cases and their delivery, especially connectivity, where India has advantages (including software capabilities, application engineering capabilities, and lower cost base) to make a global play (Exhibit 3).

3

This transformation to stay ahead of upcoming disruptions could be a success for the Indian automotive industry with the concerted support of all stakeholders.

• The government could spur local manufacturing and exports through a few specific actions:

  • Provide incentives targeted at the respective stakeholder groups, for example, purchase-linked export-incentives for International Purchase Offices (IPO), purchase-linked incentives for OEMs, and export incentives for component manufacturers.
  • Support companies to access technology by enabling tie-ups and joint ventures and providing further incentives for investments in innovation.
  • Institute trade agreements (such as free trade agreements) and reforms.
• Specifically for tapping the exports opportunity, a dedicated multistakeholder task force (comprising the Automotive Component Manufacturers Association, the Society of Indian Automobile Manufacturers, and the Government of India) could systematically enable and empower industry players, for example, through OEM connects, cross-border M&A, shifting of manufacturing, policy support, and trade agreements.
• The supplier community could embrace and invest in new technologies, quickly upskill their managerial and labor force, and drive localization by forging strategic partnerships and taking advantage of government incentives.

Disruptions, especially through the electrification of mobility, are inevitable. While these disruptions bring some headwinds, they also present new possibilities for Indian suppliers to expand both domestically and in global markets, as well as in traditional categories and newer EV segments. Indian auto component manufacturers could benefit from dedicating management bandwidth and resources to proactively harness these opportunities in the future of mobility.

Download the full report on which this article is based, The future of mobility: Transforming to be ahead of the opportunity (PDF-1.28 MB).