Chennai: India’s shift towards electric mobility and technology-intensive vehicles is exposing a capability gap among auto component manufacturers, particularly MSMEs, even as imports of batteries, power electronics, embedded software and advanced electronics rise.Domestic OEM sourcing of auto components grew 16% to Rs 6.6 lakh crore in FY26, while component exports reached Rs 2.12 lakh crore. But imports are growing faster, with China accounting for about 36% of India’s auto component imports, according to a study by Vector Consulting Group.The challenge is significant for MSMEs, which account for around 80% of India’s auto parts producers. While advanced engineering, electronics, embedded software and systems integration are increasingly critical to competitiveness, fewer than half of MSME suppliers are estimated to have these capabilities. Embedded software capability exists in only about 10% of suppliers and systems integration and product development capabilities in around 14%.“India’s automotive opportunity will depend on how quickly capability can be built across the supplier ecosystem,” Ravindra Patki, managing partner, Vector Consulting Group told TOI. “Policy support has an important role in creating the right environment, but it cannot by itself close the capability gap.”The financial constraints of smaller suppliers make the transition harder. Inventory levels can reach 60 days in some cases, locking up working capital, while EBITDA margins remain around 12%. Only about 10% of suppliers are estimated to have the operational and financial capacity to invest consistently in technology, engineering and product development.But building these capabilities cannot rest with MSMEs alone, Patki said, adding, “OEMs need to take greater ownership of capability building within their supplier base, particularly as technology adoption becomes critical to competitiveness.”A 15%-30% productivity improvement using existing assets, combined with better inventory management, could release Rs 4,000-Rs 5,600 crore in working capital. Across the Rs 2.4-Rs 2.9 lakh crore turnover base of auto component MSMEs, a 30% productivity improvement could generate Rs 74,000-Rs 88,000 crore in additional annual turnover and create a Rs 29,000-Rs 44,000 crore value pool after material costs.He said the approach should extend across the supply chain, with OEMs helping Tier-1 suppliers and larger suppliers passing their expertise to Tier-2 and Tier-3 vendors.“The objective should be to create a supplier ecosystem where capabilities are built and progressively strengthened across tiers, rather than treating MSME capability as a standalone problem,” Patki added.
