Is it true that there is a big opportunity that businesses see in the EV components space?

As the EV business or the electrical vehicles business grows, one logical beneficiary of the same would be the EV components business. A recent report by CRISIL, India’s leading research and rating agency, suggests that Indian auto component industry was likely to grow its overall top line revenues at a CAGR rate of nearly 11% till the year 2027 i.e. over the next five years. But the real story of the auto components would not be in the traditional components for the internal combustion engine vehicles but for EVs.

According to CRISIL, most of the incremental revenue growth for auto components sector or the auto ancillar sector as it is known, in next five years will come from the EV (Electric Vehicle) business only. As a result, the growth in demand for EV parts will be robust even as the supply of parts for the conventional internal combustion (IC) vehicles will continue to maintain growth momentum till 2027. There will not be a slowdown in demand for IC compnents but it is just that EV components demand will grow exponentially.

Let us look at some interesting numbers. Currently, the share of EV components in the overall revenue basket of auto components as a whole for FY22 was just 1%. That is likely to increase at an exponential rate and it is likely to be evident in the numbers. During the coming years, the revenues from electric vehicle components is likely to surge in a big way from merely Rs4,300 crore in value in FY22 to a level of Rs72,500 crore in fiscal 2027. That is exponential growth and that is why EV components will drive most of the growth ahead.

Even within the EV components segment, it is inerestring to note how this EV segment will be broken up. For instance out of the Rs72,500 crore for EV components, CRISIL estimates that 60% of revenues would be from the battery segment. Another 30% would be split equally between drivetrains and electronics. The other smaller components would account for 10% of the residuarl demand for EV components. However, it is expected that bulk of the EV components demamnd will come from the two-wheelers segment and the PV (Passenger Vehicle) segments. CV demand will be much smaller for now.

Cost will be the key to success of these EV component stories. For instance, the issue of cost efficiency in EVs is still the core issue. Hence, cost viability of EVs versus IC vehicles will have to combine with the compulsion of rising demand for cleaner mobility. It has begun with the younger population and the trend will get accentuated in the coming quarters. In the case of 2-wheelers, the EV penetration is expected to touch 19% by 2027 while PVs would be around 7% by then. It will be still lower for the commercial vehicles segment.