The Indian auto-components industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the unorganized sector comprises low-valued products and caters mostly to the aftermarket category. The auto-component industry of India has expanded by 14.3 per cent because of strong growth in the after-market sales to reach at a level of Rs 2.92 trillion (US$ 44.90 billion) in FY 2016-17.
Spending is expected to increase by 30 billion euros in 2025, largely focused on electric vehicles technology. One third of this spend is dedicated to development of new powertrains to meet tightening regulations across the globe. OEMs are spending more on R&D as a percentage of revenue than they have in the past. Honda and Daimler, respectively, spent over 5% and 3.7% of revenues on R&D in the third quarter of 2017. This is significantly more than was spent just two years prior, when Honda spent 4.25% and Daimler 3.25% of revenue on R&D in the third quarter of 2015.
The adoption of the electric vehicle system in a car which uses a battery to power the wheels is expected to bring disruption to the Auto Ancillaries all over the World. As the battery would replace the Internal Combustion Engine auto ancillaries manufacturing engine components would face strong headwinds in terms of demand for their products. The transmission system which allows power from the engine to be transmitted to the wheels would also face similar consequences as it would not be required for battery powered vehicles. The components used in an electric vehicle are very different from a standard vehicle.
As the adoption would bring disruption for some of the Auto Ancillaries it would also benefit some players in the industry due to the expected increase in the amount of business they would get due to the rise in electrical content of the vehicle. To give an example wiring harnesses are used in cars and as cars become fully electric or even hybrid the use of these wires increases as a percentage of the total content of the vehicle.
The current battery manufacturers in India such as Exide Industries and Amara Raja Batteries manufacture lead acid batteries that are used since a long time in Automobiles due to their feasibility. Purely electric vehicles would be required to use Lithium-ion batteries that have an advantage over the conventional ones in terms of usage and maintenance. These players would have an advantage if they also start investing in manufacturing of Lithium -Ion batteries to benefit once demand starts to rise in the future. Lithium ion batteries have higher energy density, longer life span and higher power density than most other practical batteries.
Content for Vehicles
The raw material suppliers account upto 10-15% of the total value addition in a conventional Internal Combustion engine car and Component suppliers account upto 50-55% while OEMs account for 30-35% of the total value addition.
The raw material suppliers account upto 15-20% of the total value addition in an electric car and Component suppliers account upto 35-40% while OEMs account for 40-45% of the total value addition.
Clearly contribution from auto ancillaries to the electric vehicles is lower in comparison to the IC engine counterpart and that for OEMs would increase due to the basic addition of the battery (if they manufacture it in house).
Components in Electric Vehicles
The conventional IC engine power train consists of engine, transmission and drivetrain while the electric vehicle has batteries, motors and other electrical – electronic components such as the control unit, battery management system and thermal management system.
The major constituents by value of the electric drivetrain and power electronics are: 1. Motor, motor controller and Inverter 2. On board charger 3. Power distribution unit 4. DC/DC converter 5. Vehicle control unit.
The battery is the most important component of the electric vehicle followed by the electric motor that supplies mechanical power to the vehicle (from the battery). The OEMs would have to manufacture batteries to gain cost advantage over competitors as advantages from design and modification of IC engine vehicle power, efficiency and management would cease to exist once electric vehicles completely take over the market.
Gearing and transmission to a lesser extent as compared to a conventional vehicle should be there along with the components that go along to build the frame and structure of the vehicle such as chasis, shock absorbers, brakes to name a few.
Wiring harnesses would be required for connecting the electrical and electronic parts to the different systems of the cars in higher proportion. Due to the increase in the amount of wiring requirements the use of copper as a content in the car is definitely going to increase. Electric cars contain about three times more copper than a regular vehicle.
Since the weight of the battery would be the major weight of the vehicle, the use of aluminium would also increase going forward. Aluminium is the preferred choice considering the weight and strength of the metal. Lightweight metals like aluminum are replacing steel to allow cars to travel further on less power. Usage of steel in cars would more or less remain in same proportion for cars owing to its strength.
Along with Lithium, Copper and Aluminium metals such as Cobalt, Manganese, Graphite and Nickel would see significant usage in electric cars. Most of the battery anode material is sourced from natural spherical graphite and cathode material is Cobalt. Manganese and Nickel are primarily used in lithium ion and nickel cadmium batteries as a raw material.
The case of Autonomous Cars
A driverless car also called as a self-driving car or an automated car or an autonomous vehicle is a robotic vehicle that is designed to travel between destinations without a human operator.
Autonomous cars use electronic, electrical and software components to guide the vehicle. To be precise the components include sensors and actuators that are programmed by software which use artificial intelligence as the basis to identify objects, distance and speed to navigate the required path. The sensors and actuators in an autonomous vehicle fall into three broad categories: 1) navigation and guidance (where you are, where you want to be, how to get there); 2) driving and safety (directing the vehicle, making sure it vehicle acts properly under all circumstances, and follows the rules of the road); and 3) performance (managing the car’s basic internal systems).
The usage of software, electronics and electrical systems in vehicles is expected to drive the next leg of growth for the Global Automobile industry and companies that supply these components or systems would have an inherent demand for their products in the near future.
To give an example Tata Elxsi’s advanced autonomous vehicle middleware platform ‘Autonomai’, with deep learning and AI capabilities, is designed to help OEMs and system suppliers build, test and deploy customizable autonomous vehicle applications. The Autonomai platform provides carmakers and Tier 1 automotive suppliers with a comprehensive and modular solution covering Perception, GNC and Drive-by-wire systems, to quickly build, test and deploy autonomous vehicles.
This solution supports sensor fusion with a variety of sensors from cameras to Radar and Lidar, and leverages sophisticated artificial intelligence (AI) and deep learning based algorithms to deliver the complex use-case scenarios expected of driverless cars.
Driverless vehicles currently do not find any major commercial applications but as and when the technology becomes feasible in terms of implementation (after pilot testing) developed countries would be in a position to deploy them. In this regard developing countries such as India would find it feasible to implement them only after a certain level of infrastructure development is done.
Are Auto Ancillaries Gearing Up for the Change
Auto Ancillaries in India vary in terms of diversification of their products. Some players in the industry manufacture specific components while others are diversified to such an extent that they manufacture many products that are sold in the domestic and export markets. Let us take an example of Bosch which is an auto ancillary in India with its parent company in Germany.
Bosch is a leading supplier of technology and services in the areas of Mobility Solutions, Industrial Technology, Consumer Goods, and Energy and Building Technology. The automotive business of the company deals in the manufacturing of diesel and gasoline fuel injection systems along with electrical drives and steering components to name a few, for the OEMs. The company had already understood the need to diversify the product base to adapt to the new and emerging technology of electric cars. The company has developed systems such as automated driving, powertrain and electrified mobility which are for newer vehicles. They have developed systems that are used in conjunction to batteries and electric mobility.
Diversification of products and services to cater for newer technologies is what would keep an Auto Ancillary like Bosch to maintain growth momentum in earnings and revenues. Investments in newer technologies takes time to generate profits for auto ancillaries and Bosch would not be an exception to that.
Cost Comparison Electric and ICE Vehicles
An electric 2-wheeler is not economically comparable (at capex level) even if the battery price falls to 73 USD/Kwh, however, the Total Cost of Ownership (TCO) viability could be achieved in 2 to 5 years at different battery prices for a commercial application. However, in personal mobility use, due to shorter commuting distance, the payback within 3 to 4 years is only possible when the battery price falls to 73 USD/Kwh with the current price being 300 USD/Kwh.
The current TCO would become positive if the battery prices fall to below USD 150 per Kwh for Three Wheelers. At current cost levels, any electric 3W with near equal performance to IC engine will be at least twice in price. Moreover, limited range and inadequate charging infrastructure will lead to downtime resulting in revenue loss.
Due to the addition of incremental EV powertrain components such as battery, traction motor, control unit and charging point, the initial increase in the purchase price of an equivalent EV over an entry level sedan is 70%. Due to the moderate mileage clocked by PVs for personal use (40 to 50 km per day), electric cars are rendered unviable even for a 7 years ownership period. This scenario holds true even if the battery costs fall to 50 USD/Kwh.
For the fleet application, due to longer commuting (200 km per day), the viability gap reduces substantially. If the battery price falls below 150 USD per Kwh, fleet operators can recover the additional investments by 4 years.
The Road Ahead
India is the global hub for manufacturing of automobile components and faster adoption of electric vehicles by the developed countries would benefit ancillaries supplying electric car components.
It would take time for the Indian economy to shift to the usage of electric vehicles as cost competitiveness is a big factor considering the per capita income. Once electric cars become at par with their gasoline counterparts the shift would be rapid. There are a lot of policy initiatives the Government needs to take for faster adoption of electric vehicles and there is still a long way to go in making things happen on this front.
However, for Indian auto ancillaries gearing up for supply of electric car components to developed countries that are adopting it at a faster rate the opportunity would be big.