Auto industry bets big on tech as 2022 promises green shoots

By: Aakash Minda, Executive Director, Group Finance & Strategy, Minda Corporation

Industry and the government walk as partners in the story of development. Upholding this very sentiment, the government presented a story of growth in its Union Budget for FY23, with a slew of measures and plans to push industrial growth in India, giving it the edge to walk tall among global economies. The year 2022 stands at the precipice of change for the entire automotive industry across the globe, with disruption visible across quarters. The India picture in this is one of technological and infrastructure growth. 

As the industry looks to move beyond the impact of COVID-19, some concerns remain over subsequent mutations of the virus, along with the ongoing shortage of semiconductors, and fluctuating input costs. The positives, however, outweigh the negatives as we look at the year with cautious optimism. 

D2C

One marked change over the past couple of years has been the en masse adoption of technology. Content streaming apps releasing more movies and TV shows over the past two years than all other major production studios combined is a very clear yardstick to measure changing user preferences. The adoption of the internet as a go-to runs beyond the realm of entertainment, and into sectors of FMCG, medicine, and even the auto industry. Booking vehicles online isn’t a niche anymore, but turning into a volume generator for automakers even as customers remain hesitant to leave the safety of their homes. Several OEMs such as market leader Maruti Suzuki have already started booking purchases and test drives online.  

The year 2022 is likely to see this phenomenon bear fruit more than ever, with automakers expected to interact with their customers directly through online bookings, sales, and even after sales service options. The auto component industry is expected to cash into this evolving ecosystem as well, with more access to spare parts and accessories online. 

Premiumisation of Vehicles

As India returns to its GDP growth trajectory, and as people get a better standard of living, aspirations for vehicles ‘one category above’ rise as well. Ownership trends over the past few years have shown the desire of the average Indian vehicle buyer to push the boundaries when it comes to buying their dream car or two-wheeler. The overall acceptance of more premium vehicles augurs well for higher margins for component manufacturers, and this trend is likely to stay through 2022 and beyond. 

Evolving Mobility

Among the most talked about subjects within the industry, the electrification of vehicles will present a unique opportunity in 2022 as automakers and component manufacturers push to develop better infrastructure and technology to aid higher sales. The year will see more stress on improving battery technology and charging infrastructure within the country to enable wider acceptance of greener vehicles. 

Arriving in tandem with the influx of EVs is the presence of connected mobility. Software and hardware are blending into one in the modern-day automobile. Vehicles nowadays come equipped with AI assistants and automated functions such as lane assist, assisted braking, adaptive cruise control..Electric scooters, too, are equipped with touchscreen displays and smart features. More evolved Advanced Driver-Assistive Systems have been finding their way into two-wheelers, HCVs and cars alike, with the trend only likely to gather pace through 2022. 

Exports – China Plus One  

Even as the domestic auto industry recovers from a two-year slowdown, exports of vehicles and components are expected to aid margins and grow at a faster pace versus local dispatches during the year. Markets of Europe are expected to lead this growth, with green shoots of recovery more visible in the region and a subsequent return in demand. A slew of policies being launched by the Indian government would give manufacturers global competitiveness, pivoting away from China as a more lucrative hub. 

The Rs. 260 billion Production-Linked Incentive (PLI) scheme launched by the government in 2021 is expected to serve as a fillip for the auto components sector. It will subsidise the cost of developing advanced auto components for a future-ready auto industry. In the long run, once domestic manufacturers gain scale and expertise, the scheme has the potential to further aid India in becoming a global hub, manufacturing components in India for the world.

Short- and long-term Challenges

In the short term, the Omicron threat, along with that of subsequent mutations would keep the optimism cautious. However, with the government’s push to vaccinate people bearing fruit, and with over 1.7 billion doses having been administered (according to government data), there continues to be hope for a quicker recovery. 

On the supply side, constraints in the manufacturing of semiconductors would keep the production-delivery equation tight, with in-demand vehicles expected to have longer waiting periods over the coming months. As mobility options get more dependent on technology, and the need for semiconductors grows further, this shortage is expected to dampen production volumes over the first half of 2022 as well. 

A concern in the longer term remains the setting of well-defined roles for OEM’s and auto component players to mutually share competence in technology to aid higher localisation. The optimisation of the value chain is critical to ensure solutions are created for a wider use, enabling their optimum utilisation. 

The challenges, while a concern, aren’t insurmountable. The opportunities presented through a change in the paradigms of vehicle technology and their adoption present a glimmer of hope for the year as the automotive industry aspires to drive past the muted numbers in 2021. 

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