Arsalan Farooquee
Electric Vehicles (EVs) are revolutionizing the automobile industry, much like smartphones transformed the mobile phone market. These connected vehicles feature advanced software and data systems, driving further innovation in the sector. With software-managed components, EVs offer unprecedented opportunities to harvest and analyse data, setting the stage for a data-driven evolution in transportation. In essence, EVs are not just vehicles; they are data powerhouses on wheels, steering the future of mobility.
The increasing value attributed to software and data in EVs is due to the higher integration of technology in auto parts. For a typical four-wheeler, electronics account for approximately 53% of the total bill of materials (BOM) in an EV, compared to just 18% in an Internal Combustion Engine (ICE) vehicle.
Contribution of electronics to the bill of materials of an EV and ICE vehicle (source: discussions with OEMs and auto ancillaries).
The electrification wave is redefining the automotive ancillary landscape. While it disrupts traditional auto ancillary categories such as engine and fuel injectors and will render them obsolete, it also creates new opportunities and value chains, including batteries, Battery Management Systems (BMS), electric motors, controllers, and chargers. Additionally, there is a category of components which are agnostic to EV/ICE technology, and suppliers of such components are likely to modify and adjust for EVs.
The EV transition paves the way for new entrants as suppliers of crucial components such as battery packs, BMS, electric motors, chargers, vehicle control units and other software-controlled components, which together make up to two-thirds of the EV’s BOM. Various market projections indicate that the annual EV sales in India could cross $50 billion by 2030. Consequently, this would result in a market of more than $25 billion for EV ancillaries.
Contribution of different components to the cost of a typical EV (source: discussions with OEMs and auto ancillaries).
Traditional auto ancillary players are also exploring various strategies to stay afloat amid the EV transition, such as forging joint ventures, acquisitions, external partnerships, or pivoting their core operations. However, they face a strategic conundrum: determining the crossover point where EVs take precedence and ICE becomes secondary. Investing too soon could lead to financial strain and surplus capacity in a premature market, while delaying could result in missing the boat entirely to more agile competitors. While some incumbents may thrive, many others lack the innovation-led culture crucial for navigating this transition. Further, despite the established connections that incumbent suppliers have with the OEMs, the introduction of new components necessitates similar testing, validation, and homologation processes that a new entrant to the market would face.
Beyond the opportunity for new component suppliers in vehicle BOM, the transition to EVs has created a separate market for charging infrastructure and charging services, as well as for battery recycling and second-life applications. New-age auto ancillaries will be positioned to tap overlapping opportunities in these segments as well. Furthermore, the software and data systems of EVs will also serve a large market of Fintech and Insurtech companies.
Several new entrants are already operating in the EV components market in India, with demand primarily coming from electric two-wheelers and three-wheelers (L3 and L5 segments). The initial impetus is also coming from the requirement of indigenous components under the Production-Linked-Incentive scheme and similar government subsidy programs. Additionally, the OEMs are looking to diversify supply chain and reduce import related risks. Many more new entrants in the EV ancillary segment will emerge in the coming years as EV penetration increases across different vehicle categories. Similar trends are emerging in Southeast Asian geographies such as Viet Nam and Indonesia.
Few of the new entrants in EV ancillary market in India.
ADB Ventures, with its extensive network and regional expertise, is strategically positioned to lead the charge in nurturing new entrants in the EV ancillary market. Having already backed various segments of the EV ecosystem, including OEMs like Euler Motors and Selex Motors, battery swapping firms such as Tiger New Energy and, Fintech and leasing firms such as Revfin and Electrifi Mobility, ADB Ventures is poised to extend its support to new-age ancillaries in electric mobility.