Domestic auto parts makers benefit from supply disruptions from China

While they have not been able to make a huge dent globally, their operations have grown with OEMs in India beginning to lean on them more heavily for supplies

Domestic auto-component makers have benefitted with original equipment manufacturers (OEMs) going for localisation and import substitution following frequent supply disruptions from China.

Indian automobile companies have been importing about 20 per cent of their requirements from China.

Ajinkya Firodia, MD, Kinetic Engineering (KEL), told Business Standard that Indian OEMs are gradually warming up to the idea of sourcing more locally. He added Chinese components cost about 20-25 per cent less on an average, and there is still some demand in the after-market. However, OEMs are gradually de-risking their production plans from frequent Chinese disruptions.

“We have made the axle and gear box for the three-wheelers, and also the chassis for the two-wheelers. Due to regular supply disruptions from China, now many large OEMs are switching their sourcing to Indian component makers. We see this as an opportunity, as this opens up a wider market for us,” Firodia said.

A Uno Minda spokesperson said the company has seen significant growth in some of its businesses facilitating localisation and import substitution. “More specifically, four-wheeler and two-wheeler alloy wheels have shown tremendous growth due to localisation and increasing penetration levels. We have also contributed to the localisation of sensors and controllers. Ours is the first company to fully localise wireless chargers, which were earlier imported by almost all OEMs. Uno Minda has also built very strong EV-specific components for 2W and 3W and is supporting OEMs in domestic sourcing, reducing dependence on imports,” the spokesperson explained.

During the pandemic there were disruptions in supplies. China’s zero-Covid policy caused sporadic lockdowns, disrupting supply chain momentum intermittently. Add to these was the problem of container shortages. All this led to an increase in lead times between countries, impacting the reliability of the global supply chain.

Puneet Gupta, director of S&P Global, says India hasn't yet emerged as the most-favoured alternative to China for fresh investments in automotive production. Countries like South Africa, Vietnam and Thailand have scored in this space. However, he adds that in the domestic market, OEMs are definitely warming up to the idea of sourcing more locally to maintain reliability of their production lines.

Data from the Automotive Component Manufacturers Association of India (ACMA) showed that sales to OEMs were up 46 per cent from Rs 1.53 trillion ($20.7 billion) in H1FY22 to Rs 2.23 trillion ($28.6 billion) in H1FY23, indicating that much of the growth in the Indian auto-component industry is coming from domestic market demand, said Vinnie Mehta, director general of ACMA.

Firodia said his firm is not dependent on China for its electric two-wheeler Luna. All the parts for this product have been developed in India.

Apart from import substitution, exports of companies have also grown. For example, the Uno Minda spokesperson said, “We have won significant orders for export of automotive switches to the US and for automotive seating to Europea. India becomes a preferred destination as global OEMs diversify their supply chain.”

The spokesperson went on to add that given the geopolitical tensions, nations were looking to rethink and restructure their supply chain.

“Covid-19 has accelerated the repositioning of supply chains within Asia. In Fact Japan, India and Australia have started a joint initiative called Resilient Supply Chain Initiative (RSCI) to diversify procurement and to reduce the risk of disruptions from overdependence on a single source specially china,” the Uno Mind spokesperson said.

Figures in Rs crore	H1 FY 2022	H1 FY 2023	Growth Rate
Auto Components Supply to OEMs	1,53,297	2,23,874	46.0 %
Aftermarket	38,895	42,007	8.0 %
Exports	68,746	79,033	15.0 %
Imports	64,310	79,815	24.1 %
Industry Turnover	1,96,627	2,65,098	34.8 %

Source: ACMA