Zero-Covid gone, China gets aggressive on auto gear exports

India may still remain unaffected and continue to post strong growth in auto component exports as multinationals carry on with the China-plus-one approach to de-risk supply chains. But it needs to watch out for the strategy of the customarily aggressive neighbour, which is reaching out to old customers who moved to suppliers elsewhere due to Beijing’s zero-Covid policy and geopolitical developments, said industry experts.

The global majors do not want to sour their relationship with suppliers in China, which still offers clear economies of scale for many key components, they said.

Exports of automobile ancillaries from China fell in fiscal years 2020 and 2021 before jumping 27% to $188 billion in FY22 and 6% to $201 billion in FY23. India’s experts grew faster in FY22, by 44% to $19 billion, but the pace slowed to under 6% last fiscal year when shipments totalled $20.1 billion.

Several multinational automakers ET spoke with said while they were moving critical and aftermarket components businesses to India, some have of late started going back to sourcing from China too.

A senior executive of a US-based tier-1 supplier said his company had moved 35-40% of its sourcing to India since 2021. However, “components like ball bearings and electrical components, where China has clear economies of scale, we have begun sourcing from China,” said the executive. This executive and several others spoke on the condition of anonymity because they fear backlash in China.

Interest subvention, subsidies for machinery and R&D, and other incentives make it attractive for companies in China to mass produce and offer at competitive rates to their buyers, said industry executives. They suggested that India also consider incentivising international purchasing offices, the offshore outfits that procure parts from a supplying country, for increasing their sourcing from here. Despite the challenges China’s aggressive strategies may pose, India’s component industry is optimistic of posting strong growth.

The industry is aiming to double exports in about 4-5 years from the current $20 billion, said Vinnie Mehta, director-general of the Automotive Component Manufacturers Association.

Europe and North America account for 31% and 30%, respectively, of India’s exports and despite the recessionary trends in those markets, our exports are holding, he said. Kavan Mukhtar, head, auto practice at PwC, said 30-plus international purchasing offices in India had set ambitious sourcing plans for the next three years. This presents a strong growth opportunity to the Indian components industry to get a fair share of the global sourcing pie, he said.

The ZF Group, a leading German tier 1 supplier, has a target of sourcing 2 billion euros worth components from India by 2030. Its sourcing from India has grown at 20% compounded annual rate since 2019.

“Our sourcing is mainly focused on machined castings and forgings, and we are now making inroads into electrical parts,” said Suresh KV, president ZF India.

With the recent chip shortage and supply chain disruptions, dependence on one country for sourcing may not be a viable strategy, he said. A major US-based truck and bus maker has seen its sourcing from India jumping fivefold in three years. While this company seeks to move at least half the sourcing away from China, as a supplier that country cannot be ignored, said an executive.

“They have mass production of electronic parts and high-grade aluminium,” he said, adding that coupled with government benefits, they become price competitive.