With close to five million cars projected by 2015 out of which three million will be small cars, offering electronics solutions to the Indian market at a competitive price point will be an opportunity and a challenge to Automobile manufacturers.
India is one of the fastest growing economies in the world, and the most exciting of the BRIC countries (Brazil, Russia, India, and China) for shrewd international manufacturing investors. One of the major driving forces in this growth is the automotive sector, which has grown in the last decade with a CAGR of over 12 percent. The Indian automobile industry is currently experiencing an unprecedented boom in demand for all types of vehicles. This boom has been triggered primarily by two factors: (1) increase in disposable incomes and standards of living of the middle class and (2) the Indian government’s liberalisation measures during the mid 1990s such as relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports and banking liberalisation that has fuelled financing-driven purchases. The car sales jumped from 348,000 in 1995 to 1.07 million in 2006. Industry observers predict that the numbers are expected to go to five million (three million small cars) by 2016. Easy availability of finance with lower interest rates has contributed to the growth of the Indian automobile industry. Going by the present trend, the automobile industry is expected to grow at a CAGR of around 10 percent between 2006 and 2016.
The major OEMs in India fuelling this growth are Tata Motors, Maruti Suzuki, Hyundai, General Motors, Volkswagen, Mahindra and Renault, Toyota, Honda, and Ford. Since the major chunk of business comes from these OEMs, no one expects the industry to sustain the fragmentation caused by more than a hundred plus OEMs as in the case of China. Car components worth US$ 9 billion were produced in the financial year 2006. The components market is rapidly growing and is expected to be more than US$ 25 billion in 2016.
The growth in the Indian automotive industry also brings some challenges and vehicular pollution is one of the major issues. Between 1975 and 1995, the industrial pollution load went up four times and the vehicular pollution went up to eight times. In Delhi, one person dies every hour because of air pollution related causes. Another challenge is passenger and pedestrian safety. Every year more than 1.17 million people die in road crashes around the world, and India accounts for about 10 percent of road accident fatalities worldwide. Factors contributing to this are lack of professionalism in driver training, rise in the proportion of untrained drivers and lack of positive driving culture.
There has been an increase in travel times due to increased traffic and bad roads in major cities. This has increased the need for communication and even entertainment during travelling. The challenge therefore, is to provide entertainment & communication to the driver without distracting his/her attention from driving.
The greenhouse debate in industrialised nations is driving the growth of automotive electronics. It is very likely that India’s future emission and safety regulations will drive “Electronics” industry. India is expected to align its crash requirements and emission standards with the European standards by 2008-09. Presently, Bharat Stage III, emission standard in India equivalent to Euro III, is mandated in metros and other large cities and Bharat Stage II is mandated for the rest of the country. It is expected that by 2009 Bharat Stage IV, equivalent to Euro IV, will be introduced in the metros and Bharat Stage III will be introduced in the rest of the country. By 2010, deployment of airbags and car protection mechanism during collision could be made compulsory.
Increasing customer demand for fuel efficient, safer and multimedia-enabled vehicles has been driving manufacturers to make their vehicles intelligent than ever before. While body electronics and vehicle security systems are set to increase rapidly, it is estimated that by 2010, many safety features like anti-theft (Immobilizer), vehicle balance distribution, car protection during collisions, engine cut off systems and air bag deployment could be standard in Indian vehicles.
A comparison between India and US-Canada shows that the current average “electronic” content per vehicle in India is US$ 542.52 in 2006 and is expected to go up to US$ 745.27 by 2011, whereas in the US-Canada the number for the corresponding years is US$ 2,754.88 and US$ 3,961.68 respectively. India’s automotive electronics market was about US$ 1.7 billion in 2005 and is expected to grow at a CAGR of 22 percent to US$ 4.5 billion by 2016. Independently, the automotive entertainment system market is set to grow at 11 percent CAGR from 2005 to 2010 and the market for automotive sensors is expected to grow at 34 percent CAGR during the same period.
Automotive body electronics and automotive sensors, which represent just one and six percent respectively of the total automotive electronics market in India, are expected to record the highest growth in the future. The powertrain electronics market is expected to witness a CAGR of 17.3 percent by 2010. Safety electronics market is another area which will witness rapid growth and Indian manufacturers are expected to gain hugely. In the CD/MP3 players, foreign aftermarket players like Sony, Pioneer etc. have a significant market share. This could be altered by OE fitted audio systems from major Tier 1 suppliers.
The Indian automotive industry has grown from pure mechanical systems to systems enhanced by electronics to improve performance, emissions, and fuel economy. The use of these advanced features will definitely enable OEMs to make their products more appealing to customers, differentiate brands and build brand loyalty.
However, adding new features seamlessly increases vehicle integration challenges and product complexity for OEMs. The use of embedded system software has further made things complex. Despite the growing complexity, the intense competition among the OEMs has increased pressure to reduce development cycle and cost, yet constantly improving quality and reliability. OEMs today work on products they plan to release after about two years, and during this period customer preferences change, which will force the OEMs to make changes to the proposed designs. Current architectures and capabilities do not allow features to be added without sacrificing quality.
Hence, designing requires a lot of time and constant collaboration between OEMs and their suppliers. Usually, OEMs have two or three suppliers working on a single ECU (Electronic Component Unit), and thus each supplier has to maintain exchangeability between OEMs, vehicle platforms and other suppliers. Suppliers have to ensure that their scale-model ECUs not only work alone, but also work in tandem with other ECUs without any problem. The suppliers are required to conform to a number of standards recommended by the OEMs and have to be very careful while designing and testing the products for their tolerances before sending them to OEMs.
The testing process at Tier 1 suppliers and OEMs is another crucial task which takes a lot of time and effort. Further, increasing use of electronics will increase the price of the vehicle for the OEMs. This might have an impact on the sales due to price-sensitive nature of the Indian customer. This would result in OEMs putting pressure on the suppliers to supply electronic components at a competitive price.
To manage the impact of increasing electronics content in automobiles, it is important that OEMs develop and follow certain standards. They should clearly define interfaces in systems architecture and manage suppliers actively to ensure that cost, quality and time targets are met.
OEMs in India are likely to invest and grow their R&D on electronics. They will scale up their operations to provide good “Electronic” product specification and be able to source and integrate them independently. They will also share vehicle integration responsibility with key suppliers. On the other hand, component suppliers can manage design complexity by using generic base designs to meet customer specifications and reuse them across multiple vehicle platforms. It is not advisable to work, develop and manufacture for a specific low-volume platform of an OEM. The strategy is to adopt scalable and modular product development architecture in Powertrain, Immobilizer & BCM, Audio Systems, and Safety Electronics. They should work closely with their clients and must upgrade themselves with the new trends.
Further, OEMs and suppliers need to embrace and adopt open standards/modular architectures like Jaspar, Autosar, Flexray etc. which allow sharing and reuse of components across platforms to reduce the vehicle development and integration complexity.
The increasing need for intelligent vehicles that provide better comfort and safety, and the introduction of vehicles with better technologies that comply with environmental standards and achieve better cost efficiency is likely to give a further fillip to the automotive electronics industry. With exciting times ahead, we have to wait and see how OEMs and suppliers organise themselves to win the consumers hearts. In this context, the OEMs and component suppliers have a joint responsibility to work closely as partners to meet the emerging opportunity and challenges associated with automotive electronics.
