Research on Automotive Power-train : Export Opportunities of Automotive Engines

1. AUTOMOTIVE
POWER-TRAIN
Feb 2012 Analysis of Opportunities
Identification of export markets for automobile engine systems
and a pre-liminary study of attractiveness of India as an
international sourcing destination for design, development &
manufacture of engines for global passenger car industry.
Author: Pallav Vikash Chatterjee, E-MBA (2012-13), Indian Institute of Foreign
Trade, New Delhi, India

2. Automotive Power-train
Automotive Power-train
TABLE OF CONTENTS
Section Page
Introduction 2
Global Automotive Industry : Trends 4
Trade in Power-train: Car Engines 13
Engine Components 13
Product Classification (HS 1988) 14
Trade Analysis (World Bank, WITS database) 15
Competitive Advantage (India) 22
Conclusions: Key Success Factors 30
Conclusions: Impact of Preferential Trade Agreements 34
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3. Automotive Power-train
Automotive Power-train
INTRODUCTION
The Indian Automobile Industry, along with the manufacture of components provides employment to
550,000 employees directly and indirectly to around 13 million people in the country. The industry since
de-licensing since 1991, as on 2006 the time when the Automotive Mission Plan 2006-16 was getting
drafted by Society of Indian Automotive Manufacturers (SIAM), has witnessed growth of 17% and a
combined turnover of over $34 Billion and investments of over $11 Billion and another $761 million
investments in pipeline. The industry at the time of forming of the policy was contributing to 17% to the
revenues of indirect taxes to the government exchequer. On the exports side, the industry had been
witnessing a CAGR of 30% since opening of the market in 1991 with exports revenue reaching to a
level of $4.08 billion out of which $1.8 billion (2005-06) coming from auto components alone. Since
automobile industry has deep forward and backward linkages to the overall economic activities in the
country, the mission that SIAM aims through its Automotive Mission Plan 2016 to doubling the
contribution of automotive sector in GDP by taking the turnover to $145 billion in 2016, with special
emphasis on small cars & MUVs, the Government policies are also aligned with encouraging the
industry to reach the goal. (SIAM, Automotive Mission Plan 2006-16)
Powertrain forms 40% by value of the basic
ex-works value of a passenger car and is
characterized by high technology content. The
global power-train market is all poised to cross
$598 billion. As the McKinsey & Co. predicts,
there will be dramatic shifts in the value chain
of automotive power-train and it is going to
evolve into a portfolio game, where car
makers, suppliers and new entrants will orient
themselves to leverage their strengths in this
portfolio game to create new opportunities and
manage potential risks. (Transforming the
power-train value chain – a portfolio
challenge, Mckinsey & Co.). At the same time,
the report also deliberates on the risks and discontinuities in the power-train industry landscape, it points
out about shifting production bases to BRIC nations (Brazil, Russian Federation, India and China) while
on the other hand, there is overcapacity in other nations. On the regulatory side, there are wide variances
across the regions resulting into wider discontinuities in the industry. In addition to these, there are
emerging trends in consumer perspective with the younger generation now looking at cars more as a
mobility solution than as a “status symbol” and preferring more fuel efficient, eco-friendly and ultra-low
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4. Automotive Power-train
cost solutions. Furthermore with stagnant markets in Triad (North America, Europe and Japan) markets,
emerging markets specially China, India and Thailand provides opportunities of business growth to the
global majors. Precisely is the reason why we witness rapid influx of FDI in automotive sector and new
entrants in the industry in these economies. Therefore this evidences right time to initiate policy moves
by the Government of India to encourage the emergence of India as a source of power-train and its
components in the global value chain and also at the same time it is opportune moment for the players to
start investing and initiate business development activities in this direction.
India enjoys certain advantages with regard to the automotive industry, namely – rapidly growing
middle class (over 450 million in 2007 as per NCAER report), market oriented stable economy,
availability of skilled manpower and low labour costs and reasonably well-developed banking and credit
financing resources. These advantages do certainly help the industry, however it is pertinent question
that will these advantages offer long term sustainability of the competitive advantage and help the
players in the industry develop themselves into globally competitive players. Towards long term
competitive sustenance in the globally connected
marketplace, it is an undebatable fact that
Indian Industry needs to integrate itself into the
global production network “By 2020 oil will be at a different level, and supply-chains,
move its activities up into Players with the best technology around the value chain and
breed innovations. In power train will call the shots. “ Automotive Industry
also these basic essentials of competitive
advantage holds merit. Partner, Booze & Company .ET (10th February 2011) There are clearly
distinct trend in technology which is evidenced in
global automotive space, namely stricter
emission norms raising contribution of costs of power-train in the vehicle, emergence of new
alternatives to the traditional fossil fuel based ICE (Internal Combustion Engine) like optimized ICE,
Hybrid electric vehicle (HEV), Range Extended Electric Vehicle (REEV), Battery Electric Vehicle
(BEV) and Fuel Cell Electric Vehicle (FCEV). A strong power-train development and integrating it with
the global production base is in the right direction towards moving up in the automotive value chain. In
order to ensure continuity in the growth momentum and reach nearer to the mission of contributing $145
billion of revenues to GDP therefore, it is required to not only move-up in production standards in terms
of quality and cost but also in terms of playing a role in global innovation chain in development of these
new technologies. In order to study the opportunities existing for power-train trade for an Indian
manufacturer, first we need to study the emerging long and medium term patterns that are evolving in
the global automotive landscape. The study involves, studying the regional trends, key players in global
automotive value-chain and the mega trends that are driving the evolution of global automotive industry.
The study of the industry therefore would throw light on the success factors required for a global player
to be successful. Subsequently, we would analyze the trade in automobile engines and the key markets
where Indian makers can have some sort of influence. In the subsequent section we are going to study
whether the current PTAs / FTAs that India has entered into or planning to enter promises some
opportunities for development of the opportunity for the Indian players to exploit.
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