Ease of Doing Business for MSMEs: Automakers worldwide have progressively been gearing up for switching to electric cars (EVs) from convention automobiles that have been powered by internal combustion engines (ICEs) for more than a century. The shift, which could potentially render ICEs obsolete in just a handful of decades, is anticipated to choose up pace as governments globally focus on tightened emission regulations, low-price charging infrastructure, dependable electrical energy access, and incentivised EV adoption, along with a international reckoning about climate transform. But along with the engines, the dawn of EVs dangers wiping out an complete sector, dominated by MSMEs, of ICE components or elements manufacturing and supplying.
The EV market place in India was worth $5 billion in 2020 and is most likely to attain $47 billion by 2026, registering a compound annual development price of more than 44 per cent, as per Mordor Intelligence. However, this development could possibly come at the price of MSMEs in the traditional automotive provide chain and especially these into manufacturing ICE components for two-wheelers, 4-wheelers, and bigger cars.
“ICE parts makers will definitely have an impact. If MSMEs don’t look for other products and areas of manufacturing goods, then certainly within seven-10 years, as EV penetration improves, it will be difficult for them to sustain as they currently have the infrastructure for ICE. If ICE itself won’t exist then it is a question of survival. Few businesses might have to shut down while others would have to pivot to other industries. Since the penetration of EVs would be in a phased manner, MSMEs would have time to evolve while possibly working on lower capacity and profits due to lower volume. MSMEs catering to two-wheelers will have to take the decision faster as two-wheeler adoption will be the fastest,” a senior member at a prominent body representing MSMEs, other enterprises into auto components manufacturing told TheSpuzz Online.
The influence is anticipated to be profound also mainly because manufacturing an EV with only 20 moving components is somewhat easier than creating an ICE automobile with about 2,000 moving components. Hence, the supplier and manufacturer ecosystem of ICE cars would be disrupted as their addressable market place size would shrink along with influence in the aftermarket like automobile repairs or servicing. Consequently, it would be crucial for MSMEs to invest in new capacity creating and infrastructure overhaul.
Also study: Over 1 lakh MSMEs disbursed $1 billion loans in six years: Lendingkart
Here, although original gear producers (OEMs) and big suppliers could possibly nonetheless be in a position to absorb the influence but MSMEs could be hit drastically. Not just this, MSMEs could possibly also face more competitors from new-age technologies-enabled enterprises and battery makers getting into the EV ecosystem. Importantly, because about half of the worth of an EV rests in its battery, it would leave only the remaining 50 per cent of the EV worth for ICE MSMEs and producers of all other components to operate in as ICE and its parts’ manufacturing is entirely unrelated to an EV battery manufacturing.
“EV battery is a completely different technology from ICE. The EV adoption is a classic case of technology disruption. The fate of the ICE segment looks similar to how the cathode-ray tube industry was shut after flat-screen televisions came in. Hence, it is very critical for ICE parts makers to look at this strategically and work collaboratively while there would be common parts in ICE and conventional vehicles such as windscreen, seats, steering, etc,” Vinay Piparsania, Automotive Expert, and CEO, IIT Delhi Endowment Management Foundation told TheSpuzz Online.
So, producers will have to get started their strategic journey early adequate to make the transition to what ever diverse sector or do essential investigation and development, collaboration and acquisition, if they want to continue in the sector, Piparsania added.
Hence, the ICE and its components manufacturing MSMEs would have to work on adjusting their item portfolios to EV manufacturing even as there would be an chance in locations such as microprocessors, controllers, motors, and so on. For batteries, “MSMEs may get associated with battery manufacturers as sub-suppliers. The content of components in EVs is less by 30-40 per cent in comparison to ICE vehicles,” added Poddar.
Haryana-based Nitin Madan who manufactures diesel engine components making use of casting and supplies them mentioned the influence on engine components producers with EV adoption would be extreme. The enterprise is starting to focus on expanding use situations of its current manufacturing facility to other industries.
“The impact might not seem very sudden at the moment but it depends on the government policy. The first impact will be from OEMs as they would stop taking parts of ICE from us. So, our supplies will be useless. Then there would be an impact on the aftermarket that sells parts and components. The decline of the ICE parts manufacturing and supplying market will begin once the government norms come in,” Madan, Managing Director, Grindlays Engine Parts told TheSpuzz Online.
The influence would also be on employment, Madan mentioned as he has currently began hunting into other elements necessary for an EV automobile such as gear and brake elements. “In household components, construction-related equipment, we can provide casting-based products by utilising our existing infrastructure and investment. There will be a sure-shot impact on employment.”
The Ministry of Heavy Industries had formulated a scheme referred to as Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India) in 2015 to enhance the adoption of electric and hybrid cars in the nation. The second phase of the scheme was implemented for 5 years because April 2019 with budgetary help of Rs 10,000 crores.
The phase focuses on backing electrification of public and shared transportation. It had targeted to help 7,090 electric buses, 5 lakh electric 3-wheelers, 55,000 electric vehicles, and 10 lakh electric two-wheelers by means of subsidies, according to the information by the ministry shared in August this year. Moreover, 38 OEMs like Hero Electric, Ather Energy, TVS Motor Company, Mahindra Electric Mobility, Tata Motors, Avon Cycles, and so on., have been registered as of August 9, 2021.
Subscribe to TheSpuzz SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, smaller, and medium enterprises
The government had last month also authorized the production-linked incentive (PLI) scheme for auto and auto elements enterprises focusing on electric and hydrogen fuel cell cars. The scheme is anticipated to attract fresh investments of more than Rs 42,500 crore in the auto and auto element sector along with an incremental production of more than Rs 2.3 lakh crore and more than 7.5 lakh job creation in the coming 5 years, the Ministry of Heavy Industries had mentioned in a statement. As of July 19, 2021, 5.17 lakh EVs had been registered in India because 2018.
“With MSMEs being crucial contributors of the supply chain of automotive parts and components that PLI scheme is targeted at, the expected capital push will mobilise the MSME ecosystem with the expansion of supplier base within the MSME sector. As a natural consequence, we are likely to see an increase in employment opportunities in the sector as well,” Ritika Ganju, Partner, Phoenix Legal had TheSpuzz Online. However, this signifies small for ICE components producers.
Piparsania mentioned it would be critical to watch trends about consumer preference as nicely. “Customer preference is based on economics. While there is this whole thing to support the environment, but the decision to buy an EV is taken from the cost of mobility standpoint. As long as the cost of mobility is not significant, customers might remain with the status quo. Earlier people thought CNG vehicles would be the preferred vehicle type but we never saw it becoming very popular.”
Despite the second Covid wave, the auto element sector is anticipated to witness 20-23 per cent income development in FY2022 on the back of a recovery in the domestic automobile sector and robust exports. The pass-by means of of inflationary trend in commodity rates will also help income development,” credit rating agency ICRA had mentioned in a release in August 2021. However, as per the information from the Society of Indian Automobile Manufacturers (SIAM), domestic sales in September recorded a 19.7 per cent decline vis-a-vis the year-ago period although passenger cars saw a 41.1 per cent decline.