The future of mobility in India: Challenges & opportunities for the auto component industry – McKinsey Report

The global automotive industry is on the verge of disruption. Digitization, increasing automation and new business models have revolutionized other industries, and the automotive industry will be no exception to such a revolution. The Indian automotive industry has started to experience the effects of this global disruption. How prepared are automotive stakeholders for this disruption? And how can they ride this change to expand into newer areas? This report outlines the importance and imminence of the disruption, the drivers of electric vehicle penetration and the implications for all stakeholders, especially auto component manufacturers. Acknowledging the upcoming disruption and reinventing the business accordingly is the key to managing the changes that lie ahead. E-mobility is here and now Four technology-driven trends—electrification, shared mobility, connectivity and autonomous driving—are leading the automotive industry to this disruption. These trends will shift markets and revenue pools, change mobility behaviour and build new avenues for competition and cooperation. Globally, revenue pools from conventional sources such as one-time vehicle sales and aftermarket sales could continue to grow at their current pace (low single-digit growth depending on geography).

The real growth ahead lies in services, which are poised to grow by an average of up to 40 percent per annum globally. Electrification—an attractive solution to growing levels of vehicle pollution in metropolises—is of particular importance to India today. The automotive industry is already feeling the effects of electrification or e-mobility, both globally and in India. By 2030, electrification could lead to electric vehicles (EVs including Battery Electric Vehicles, Plug-in Hybrid Electric Vehicles and Hybrid Electric Vehicles) holding a substantial share (up to 50 percent of new vehicle sales in a breakthrough scenario) of the global automobile sector1 . If India sees a similar momentum, it will significantly impact manufacturers across the automotive value chain. Drivers of electric vehicle adoption Earlier in 2017, former Power Minister Piyush Goyal announced the aspiration to not sell a single petrol or diesel car in the country by 20302 .

While global EV sales remain low, examples from other countries indicate that four factors—a mix of push and pull—could determine the pace of EV penetration in India: ƒ Regulations and incentives: Many countries have promoted e-mobility through a range of incentives, but these alone did not drive EV penetration.

A supportive ecosystem that also establishes strict regulations on carbon emissions and regulations driven by strategic intent (e.g., reduce current account deficit and geographic dependence driven by crude oil) indirectly prompts the higher adoption of EVs. ƒ Technology: As a large component of the overall EV costs, high battery prices impact manufacturing and sales. Improved technology can reduce battery costs, increase 1 McKinsey Sustainable Mobility Initiative; The International Council on Clean Transportation (ICCT) – says-Piyush-Goyal.html

The future of mobility in India: Challenges & opportunities for the auto component industry ix efficiency and improve driving range, making EVs more accessible and attractive to potential customers. ƒ Infrastructure: Easy and affordable access to charging infrastructure—both standard AC charging as well as rapid DC charging—is a key to meeting customer needs. ƒ Customer demand: Participants in two industry roundtables organized by the McKinsey Center for Future Mobility in Delhi and Chennai cited high upfront acquisition cost as the top deterrent to EV penetration3 .

Creating a pull among customers by creating an economical cost proposition will be crucial in encouraging customers to invest in EVs. The way forward for e-mobility in India Besides the end-users or customers, three key stakeholders could play an integral role in India’s transition towards EVs. The government: By defining the regulations on emissions and fuel efficiency, clarifying aspirations, strategic intent and direction, exploring incentives and subsidies, it can support EV adoption and focus on developing a supportive ecosystem. The power, fuel and charging infrastructure companies: By laying down a foundation of support, innovating on business models (e.g., leasing of batteries, swapping infrastructure, deploying fast chargers), making the economics of (fast) charging infrastructure work, providing stable power supply and grid stability, they can enable easy and rapid charging and drive EV adoption.

The automotive industry: By changing the product and component mix bringing EV components and vehicles to life, building the right talent pool and skill set, improving the performance of batteries and electric vehicles and building scale, the industry can drive the EV disruption in India.