… Bharath Rao, CEO & Founder, Emobi
India’s auto component manufacturing sector stands at a decisive inflection point. As outlined in an earlier article on the structural transformation underway in the automotive ecosystem, the shift toward electric vehicles (EVs) is no longer a future possibility but a present reality reshaping supply chains, capital allocation and skills. While the transition offers significant opportunities, it also exposes deep structural challenges that demand coordinated policy action, sustained investment and focused innovation.
The core problem facing auto component manufacturers is the asymmetry between the speed of EV adoption and the readiness of the supplier ecosystem. Traditional internal combustion engine (ICE) components such as exhaust systems, fuel injection parts and complex transmission assemblies face gradual obsolescence. At the same time, EVs require a new set of components: battery packs, power electronics, thermal management systems, lightweight materials and software-driven subsystems. Many Tier-2 and Tier-3 suppliers, which form the backbone of India’s manufacturing depth, remain financially and technologically underprepared for this shift.
Policy gaps and the need for stability
A major obstacle for manufacturers is the uncertainty surrounding policy. While central schemes like FAME and the Production Linked Incentive (PLI) for auto components, along with various state-level EV policies, show government intent, frequent changes and inconsistent execution create significant planning risks. Capital-intensive investments, particularly in EV-specific tooling and R&D, require long-term clarity regarding incentives, local manufacturing requirements (localisation norms), and projected demand.
To address this, the government should focus on policy stability and harmonisation. A clear, multi-year roadmap for EV adoption is essential, one that ensures alignment between central and state incentives, localisation targets, and infrastructure development. Extending PLI benefits specifically to crucial EV components, such as power semiconductors, advanced motors, and battery management systems, would give suppliers the confidence to invest capital. Furthermore, a gradual, phased rationalisation of import duties can facilitate the industry’s transition, prevent sudden cost shocks while still promote domestic value addition.
Investment constraints and access to capital
The EV transition demands for higher upfront investment compared to incremental ICE upgrades. New machinery, testing facilities, quality certifications and talent acquisition significantly strain balance sheets, particularly for mid-sized suppliers. Traditional lenders often remain cautious due to technology risk and uncertain payback periods, while equity capital is selective and concentrated among larger players.
Addressing this requires a blended financing approach. Development finance institutions and public-sector banks can play a catalytic role by offering long-term, lower-cost loans tied to EV transition milestones. Credit guarantee schemes for Tier-2 and Tier-3 suppliers would reduce lender risk and unlock funding. On the equity side, encouraging private equity participation through investment platforms and sector-specific funds can help de-risk early-stage investments in EV component manufacturing.
Equally important is enabling consolidation. As highlighted earlier, scale matters in the EV era. Mergers, joint ventures and strategic partnerships, especially with global technology players, can help Indian suppliers access capital, intellectual property and global markets. Regulatory processes for such transactions must be efficient and predictable to support timely execution.
Innovation deficit and technology readiness
Perhaps the most critical challenge is the innovation gap. EVs are not merely mechanical products but electro-mechanical and software-integrated systems. Many component manufacturers lack in-house R&D capabilities in areas such as power electronics, embedded software and advanced materials. Dependence on imported technology limits competitiveness and margins, undermining long-term sustainability.
The solution lies in building a robust innovation ecosystem. Industry-academia collaboration must move beyond pilot projects to commercially relevant research. Dedicated EV technology centres supported by government grants and industry funding can provide shared access to testing, prototyping and validation infrastructure. Tax incentives for R&D expenditure, especially for MSME suppliers, would further encourage innovation.
Skill development is equally vital. The existing workforce, trained largely for ICE manufacturing, requires reskilling in electronics, software integration and systems engineering. Large-scale, industry-led skilling programmes supported by vocational institutions and digital platforms can bridge this gap. Without a skilled talent pool, even well-funded investments will struggle to deliver outcomes.
Supply chain resilience and localisation
The EV shift also exposes vulnerabilities in global supply chains, particularly for critical minerals and semiconductors. Overdependence on imports creates cost volatility and geopolitical risk. While full self-sufficiency may not be immediately achievable, strategic localisation is essential.
India must prioritise domestic manufacturing of high-value components rather than low-margin assemblies. Encouraging upstream investments in materials processing, cell manufacturing and semiconductor packaging can strengthen supply chain resilience. Public-private partnerships in these areas would help share risk and accelerate execution.
A coordinated path forward
The transition to EVs is not a zero-sum disruption but a structural development. Auto component manufacturers that adapt early stand to gain from new revenue flows, export opportunities and higher value expansion. Regardless, success relies on coordination across policy, finance and innovation.
Policymakers must provide clarity and consistency, investors must adopt a longer-term view of value creation, and manufacturers must embrace modification rather than incrementalism. India’s competitiveness in the global automotive landscape will increasingly depend on how effectively its component ecosystem guides this shift.
In conclusion, the EV transition presents India’s auto component sector with both its greatest challenge and opportunity in decades. Addressing the structural problems through stable policy, accessible capital and innovation-led growth can ensure that the sector not only survives the transition but arises powerful, more resilient and globally competitive.
