Auto parts manufacturers plan diversification of supply chain in the post-Covid-19 world

Mumbai: Diversification is the chosen investment theme for the majority in any stock market. It is finding more takers in the auto-parts business now, with risk mitigation emerging as the cornerstone of the industry’s supply chain strategy in the post-Covid-19 landscape. And the prime beneficiary of that approach could be local sourcing.

Companies such as Tata Motors and Maruti are keen to increase local sourcing, while some others still see value in buying from China, given the cost competitiveness.

To be sure, China isn’t firing on all cylinders now. With BS6 emission norms effective this April, the supply sources must diversify.

While India would be still dependent on imports for battery, electronics or a rare-earth magnet for electric motors, other components such as castings, axles and wheel rings can be locally produced here, say ancillary makers.

“Clearly, the ancillary industry does need handholding from OEMs, which is not going to be an easy task. If the components are made locally, they have to be tested, validated and it is a long drawn game,” said Vinnie Mehta, Director at ACMA (Automotive Component Manufacturers Association).

“For certain parts, if the price difference is hardly 5-7%, it does not make it that cost competitive to import and companies will look to source locally,” said Hemant Sikka, the erstwhile head of sourcing, and currently president of the tractor division at Mahindra. OEMs may still have to go to China for certain parts like battery for electric vehicles or electronic parts as China has the scale, Sikka said.

In FY19, parts worth $4.5 billion were imported from China, translating into a growth of 7%.

"It will be a fine balance to enhance localisation content in the short term. The local supply chain needs to be protected, so it will be a joint effort between the ancillary maker and OEMs,” said Deepak Jain, CMD Lumax, and president of industry grouping ACMA.