KEY INSIGHTS (What the report is really saying)
1. A massive global trade realignment is underway
- $12–14T in global trade will shift corridors by 2035, driven by geopolitics, tariffs, and supply chain rewiring.
- Trade still grows to $42–45T by 2035—but with new winners and new routes.
- Auto components are among the most exposed sectors to trade volatility.
2. India is emerging as a “safe-bet” manufacturing and sourcing hub
Five structural advantages support this:
- Competitive and expanding manufacturing base
- Large working-age population (875M)
- Consumption boom (3× by 2035)
- Political & geographical stability
- Heavy government investments (PLI, E-DRIVE, logistics)
3. India’s auto components industry is entering a high-growth decade
- Current size: $75B, CAGR ~10% over 5 years
- Expected to reach $200B by 2030
- Export share growing fast: expected $70–100B by 2030
- India has flipped from a $2.5B deficit (2019) to a $450M surplus (2024)
EMERGING TRENDS (Demand, Technology, and Trade)
A. Two big engines of value creation
1. The $20–30B “last person standing” ICE export opportunity
- Global ICE volumes shrink, especially in advanced markets.
- Suppliers in EU/US lose economies of scale → India can step in.
- BUT: China is offloading excess ICE capacity → a short-term threat.
2. EV + Connectivity growth (domestic & global)
- India’s EV sales growing at ~35% CAGR.
- New energy vehicle volume expected to grow from 92k (2024) → ~900k by 2030.
- EVs shift value toward batteries, semiconductors, sensors, ADAS—segments where India lags.
B. Trade Disruptions Increasing Pressure on India
1. Supply-chain concentration risks
- 70% of rare earths → China
- 45% of neon → Ukraine
- 35% of palladium → Russia
→ Risk of shortages for EV motors, sensors, semiconductors.
2. Technology readiness gap
India is behind China, EU, and US in:
- advanced e-motors
- ADAS, sensors, LiDAR
- semiconductor design/fab
- battery chemistry maturity
- lightweight materials (CFRP, gigacasting)
3. High import dependence (20–30%)
Especially in:
- Electronics
- Turbochargers, injectors
- Advanced transmissions
- Cooling systems
Imports from China/Japan growing at 20% CAGR, faster than exports.
4. Tariffs & Carbon taxes → ~50% of exports at risk
- US tariffs (Section 232 Proclamation 10908) hit 60% of India’s exports to US.
- EU CBAM will raise costs 10–25% for steel/aluminum-heavy components.
5. Logistics disadvantage
- India’s logistics cost = 1.5× China
- Port congestion, truck delays, and longer distance to US/EU hurt competitiveness.
6. MSME vulnerabilities
- 70% of industry but lack scale, tech, global market access
- Rising costs and compliance burden disproportionately hurt them.
STRATEGIC RECOMMENDATIONS (IGNITE + GAIN FRAMEWORK)
McKinsey proposes two strategic pillars:
IGNITE (Industry-led actions)
I — ICE Global Play
- Capture 10–15% of China’s share in US/EU ICE exports.
- Improve global competitiveness on yield, quality, energy efficiency.
- Build export-qualifying value-add through design, metallurgy, machining, electronics integration.
- Scale up global M&A and joint ventures (particularly to access technology/IP).
N — New Technology Development
- Increase R&D investment from 1–2% of revenue → 4–6%.
- Focus areas:
- magnet-less motors
- SiC-based power electronics
- L2/L3 ADAS stack
- CFRP & gigacasting
- EV battery materials & recycling
- Build domestic testing & certification infrastructure (ADAS tracks, NABL labs).
I — Investment in New Capabilities
- Industry 4.0 quality systems
- Design-to-value labs / innovation centers
- Global logistics networks to reduce cost
- Dedicated global sales teams for US, EU, Japan, Middle East
T — Talent Rewiring
- Build skill academies within Tier-1 players
- Work with ITIs/engineering colleges to upskill for ADAS, EV, electronics
- Digital training to reskill 5M workers
E — Engagement with Academia & Startups
- Joint R&D facilities
- Startup challenges for EV/ADAS solutions
- Internship pipelines linking academia–MSMEs–Tier-1s
GAIN (Ecosystem-level actions: Government, Associations, Institutional Finance, MSME Network)
G — Government
- Expand FTA network (especially US, EU, Japan)
- Secure rare earths via G2G agreements (Australia, Africa)
- Improve logistics infrastructure (ports, multimodal transport)
A — Associations
- Align industry voice on tariffs, CBAM-compliance, tech standards
- Create shared innovation platforms and global industry linkages
I — Institutional Finance
- Affordable export credit for MSMEs
- Green financing for low-carbon steel & aluminum
- Modernization loans for automation and testing equipment
N — Network Effects of MSMEs
- Shared services for procurement, digital tools, testing
- Knowledge-exchange platforms
- MSME clusters for EV subsystems & electronics
THE BOTTOM LINE
India’s auto component industry stands at a major inflection point.
The opportunity is huge ($200B industry by 2030, $100B exports), but so are the risks:
- technology readiness gap
- import dependence
- logistics & tariff disadvantages
- MSME fragility
- carbon regulations
Success depends on simultaneously:
- Doubling down on ICE exports (short–medium term)
- Building deep competitiveness in EV, ADAS, and electronics (medium–long term)
- Strengthening trade access and supply chain resilience
IGNITE + GAIN is effectively a roadmap for India to become a global auto components powerhouse.