01 Jul 15 Indian cars are getting smarter
In the next 5 years, more than 25% of the cars in India will be connected to the internet. As automotive technology evolves, consumers are demanding additional infotainment features and functions along with the basic expectations of safety and efficiency. Currently electronics contributes upwards of 30% of vehicle cost, and 90% of innovations and new features in a car.
Considering that, the electronics segment has a huge potential to grow driven by the demand for safer, greener, more fuel efficient and comfortable vehicles. Expected stringent regulations will also mandate the OEMs to add certain features within the vehicle.
The major growth areas within automotive electronics are –
- Engine management systems (fuel efficiency)
- Safety & security (ABS, airbags, etc.)
- Comfort & infotainment (HVAC, keyless entry, GPS, bluetooth, music systems, etc.)
More growth in high end cars driving electronics growth
High end cars anyway use more electronics than entry level models. Growth is higher in the mid and premium segments, as compared to entry level.
The growth of efficiency and safety related electronics is dependent on regulation. But infotainment and other value added features are completely dependent on the customer’s willingness to spend.
Hybrid vehicles (ranging from mild hybrids to pure electric vehicles) have a higher share of electronic components than conventional vehicles.
India is still lagging behind advanced countries in the adoption of hybrid / electric cars, partly due to non-availability of such options. This is changing, and rising fuel prices coupled with environmental awareness suggests that growth could be significant, though volumes will be very small initially.
Impact of regulations
The implementation of more stringent emission norms will force OEMs to upgrade and add new products. For example, ABS has become mandatory in commercial vehicles as of April 2015, and this will drive growth for selected suppliers, and possible de-growth for those who cannot provide a suitable product.
Currently, 33 cities in India follow BS-IV norms on cars while the rest are on BS III. Under the national auto fuel policy, BS-IV standards are to be adopted across the country by 2017 and BS V by 2020. BS VI is to be introduced in 2024. The current BJP government is attempting to accelerate this transition by skipping BS-V and directly implementing BS-VI (to be at par with Euro norms), a move that will create pressures on OEMs and their suppliers.
Cost sensitivity of buyers:
Entry level car buyers in India are very cost sensitive. This limits the adoption of technology to a large extent. The challenge, as also the opportunity lies in developing products that will be affordable.
Impact on OEMs
OEMs are currently facing tough competition and have to come up with a new model every few months to stay ahead of the competition. Hence, constant technological innovation and new product development is the need of the hour for all the OEMs. And today, this means more electronics.
OEMs will have to gear up to include additional features, as more stringent regulations get implemented. The cars will also get more infotainment features driven by the customer demand and their willingness to spend.
Impact on Tier 1 / Tier 2 suppliers
Once the supplier for a new component is finalized, OEMs are unlikely to change. For Tier 1 / Tier 2 suppliers, advances in technology as well as regulation, could provide huge opportunities or threats. They need to be able to adapt and upgrade quickly, or lose out. We’re likely to see some churn and market share shifts as this process plays out.