EV Shift Puts Auto Parts MSMEs Under Pressure as Imports Rise, Vector Study Finds

India's transition towards electric mobility and technology-intensive vehicles is exposing a significant capability gap among auto component manufacturers, particularly micro, small, and medium enterprises. According to a study by Vector Consulting Group, this gap comes as imports of batteries, power electronics, embedded software, and advanced electronics continue to rise.

Domestic original equipment manufacturer sourcing of auto components grew by 16 percent to Rs 6.6 lakh crore in FY26, while auto component exports reached Rs 2.12 lakh crore. However, imports into the sector have been growing at a faster pace, with China alone accounting for roughly 36 percent of India's total auto component imports.

The resulting challenge falls heavily on MSMEs, which make up approximately 80 percent of auto parts producers across the country. While fields such as advanced engineering, electronics, embedded software, and systems integration are becoming increasingly vital to staying competitive, fewer than half of MSME suppliers are estimated to possess these technical capabilities.

The shortfall is especially pronounced in specific technical segments. The study noted that embedded software capability is present in only about 10 percent of suppliers. Additionally, systems integration and product development capabilities exist in only around 14 percent of the supplier base.

Addressing the findings, Ravindra Patki, managing partner at Vector Consulting Group, stated that India's automotive opportunity will depend on how quickly capability can be built across the supplier ecosystem. He noted that while policy support plays an important role in creating the right environment, it cannot by itself close the existing capability gap.