For the Indian automobile industry, jumping on the anti-China bandwagon will not be easy as certain spare parts, sourced from the Asian neighbour, are critical for manufacturing of BS-VI emission norm compliant vehicles.
With the advent of new stringent emission norms and connected features in vehicles, manufacturers need catalytic convertors, fuel injection systems and other such electronic parts based on semiconductors which are not manufactured in India, and also the ones available in China are cost competitive.
Not surprisingly, in February when factories in China were shut following the coronavirus outbreak, Indian vehicle manufacturers like Hero MotoCorp Ltd, TVS Motor Company Ltd, Tata Motors Ltd, Mahindra and Mahindra Ltd and others had scale down production due to shortage of imported spare parts.
With relations between the two countries souring, most automakers are now looking at ways to locally manufacture some of these critical spare parts. However, these could take up to five years to see results.
“A lot of electronic parts which go into a car cannot be made in India. Those are not available in India but I cannot complete a car without those parts…We should now look at how to improve the quality and cost of Indian products,” said RC Bhargava, chairman, Maruti Suzuki India Ltd.
While there is a significant dependence on China for internal combustion engine driven vehicles, the country’s is crucial for spare parts of electric vehicles.
Most lithium-ion batteries and cells, and electric motors are imported from China.
According to Rajesh Menon, director general, Society of Indian Automobile Manufacturers, the Indian automobile industry was pushed into upgrading to BS VI emission norms in just three years which did not allow for building of domestic supply chains.
“As the technology to meet BS VI emissions is high-end, the industry had no option but to work with global suppliers. Some parts being capital intensive, it did not make commercial sense to manufacture and source from India. Global suppliers of these parts have capacities in China and sourcing from China made commercial sense. All this led to dependence on China,” added Menon.
“Any tariff or non-tariff barriers to import would push OEMs for localisation of these components in the long term. While we have seen localisation drives in components like alloy wheels over the last few years, we still do not have the requisite scale/skills in certain segments like electrical and semiconductors,” said analysts at Motilal Oswal Financial Services in a report on 23 June.
Indian automobile manufacturers leapfrogged from Bharat Stage IV emission norms to stage VI within just three years, as the Indian government wanted to reduce vehicular emissions to curb pollution in major cities and towns.
According to a senior executive in an Indian auto maker, manufacturing cost will increase if India raises tariffs on import of some components since sourcing countries other than China will be more expensive.
“The Indian auto companies will take at least 3-5 years to establish domestic sourcing of critical spare parts since the demand forecast for the domestic market is quite subdued. For global manufacturers to set up a base in India will only make sense if the domestic market can generate volumes. Otherwise how will any company convince them to manufacture these parts in India,” said the executive requesting anonymity.