Automotive industry

Automotive industry: India could become a global hub for auto parts manufacturing

Russia’s invasion of Ukraine has prompted auto component makers in India to pivot their business models to source more parts in the country.

Major parts manufacturers such as Lumax, Sona Comstar, Minda Industries and Sandhar Technologies have been forced to consider other risk reduction options due to rising input costs, giving the country an opportunity to become a major manufacturing center.

While several Southeast Asian countries are also courting these companies, India offers a unique opportunity for automotive original equipment manufacturers (OEMs) as it already has an established manufacturing base.

Auto component makers have already started processing more parts domestically, in addition to holding larger inventories, creating buffer stocks and entering into long-term contracts.

Previously, the fulfillment cycle for these contracts was shorter, but continued supply disruption has stretched it to around nine months for some components. This has become untenable and has led automotive component players to source more from within the country.

“Now, due to multiple disruptions and volatility, the forecast and order cycle keeps changing,” said Lumax Industries Managing Director Deepak Jain.

From holding a one-day inventory, auto component manufacturers began to stock up to a week.

“It’s not just-in-time inventory anymore, because now we’re more into the old traditional ways of manufacturing,” said Nirmal Minda, managing director of Minda Industries, another leading component maker.

Component manufacturers also reduce supply chain risk through in-depth localization.

The recently announced production-related incentive programs for ACC batteries and automotive components also give India the opportunity to become a major manufacturing hub.

“With new disruptive technologies such as electric, hybrid and green hydrogen coming, it forces us to manage the future as well as the present,” Jain said.

“It’s daily work management that makes quick decisions to run the production line,” Minda added.

The Russian-Ukrainian conflict has caused the cost of raw materials, especially steel, to skyrocket. It has threatened the survival of micro, small and medium enterprises, as well as Tier 2 and 3 suppliers.

“The current situation, against the backdrop of several headwinds, has added to our woes and could derail the recovery of our economy and industry,” said Sunjay Kapur, Chairman of Sona Comstar. “Fuel prices have also started to increase day by day, which will fuel inflation and negatively impact the cost of vehicle ownership.”

Passenger vehicle demand and commercial vehicle growth could be buoyant, but Kapur stressed that “we are far from the industry’s best performance in 2018-19.”

Jayant Davar, founder of Sandhar Technologies, said the situation had become dire and profitability had also been affected. “Demand for PV and CV is a silver lining despite all the odds on the supply side,” he added.

Although the cost of carrying inventory is high, the cost of interest is low, which somewhat cushions the net impact, said Kavan Mukhtar, head of the automotive practice at PwC.