TAMIL NADU

CII REPORT ON
Promoting Automotive Electronics
Manufacturing in Tamil Nadu
Context
This report is based on the deliberations of the discussions with prominent automotive industry leaders
on encouraging manufacturing of automotive electronics in the state of Tamil Nadu. The event was
organized by CII on 22nd September 2020. Mr. A. R. Unnikrishnan, Convenor, CII TN Manufacturing Panel,
conceptualized and put together the entire event, he also set the opening remarks and context for the
deliberations. Mr. Hari Thiagarajan, Chairman CII Tamil Nadu, and Mr. Anbu Chezian, Co‐Convenor, CII TN
Manufacturing Panel made a special address on the occasion. This was followed by Panel discussions with
CEOs of major auto component companies and key participants from leading auto OEMs. Both the panel
discussions were moderated by KPMG India, and they have also supported Mr. Unnikrishnan and the CII
TN team in putting together this report.

The focus of the panel discussions was to suggest potential focus areas and actions for all the key
stakeholders, including the industry participants, associations and Government, to ensure Tamil Nadu
emerges at the forefront of automotive electronics manufacturing. The event was summed up by Mr.
Unnikrishnan, who stressed upon the need to collaborate and drive this together in a concerted and time
bound fashion.

Panel discussion ‐ Participants

Session 1:‐ Automotive Component Manufacturers

Moderator: Mr. Jeffry Jacob, Partner – Management Consulting, KPMG

Panel Members:

Mr. P Kaniappan Mr. Arvind Balaji

Managing Director Joint Managing Director
Wabco India Limited Lucas TVS
Mr. Sekaran Letchumanan Mr. G Jayakumar
Managing Director Group President & Managing Director
Flex International Valeo India
Mr K S Saravanasundaram Mr. Deepanshu Dubey
Deputy Managing Director Managing Director
Roots Industries Robert Bosch Electrical Drives Pvt Ltd

Session 2:‐ Automotive OEM

Moderator : Mr. Jeffry Jacob, Partner – Management Consulting, KPMG

Panel Members:

Mr Ganesh Sankaran Mr. Anbuchezian Nedunchezhian

Chief Program Engineer General Manager Operations
Ford Motor Pvt Ltd Caterpillar Inc

Mr. Pradeep Kumar Thimmaiyan Mr. Datta B C

Head of Product Engineering Vice President
Daimler India Commercial Vehicles Pvt Ltd Hyundai Motor India Ltd
Summary
India is today well recognized as a key global hub for automotive production and Tamil Nadu has
established itself as one of the key manufacturing clusters for the industry. While the automotive sector
witnessed a slowdown over the past two years, growth is now coming back and the long term story
remains intact. However, several critical auto‐components continue to be imported even today with very
little domestic production in the country. Automotive electronics is one such crucial area which is
significantly reliant on imports. With increasing adoption of electronics in vehicles this dependence is only
set to increase further.

With the outbreak of COVID‐19, there have been disruptions in the automotive business for OEMs and
suppliers alike. This crisis offers the opportunity for Indian companies to take advantage and provide a
viable alternative destination for OEMs by setting up world class manufacturing facilities to source for
local production as well as for exports. India, and Tamil Nadu in particular, can emerge as a viable
alternative source of supply for automotive electronics in the medium to long term if duly supported by
policy framework.

Concerted efforts from the Government, the industry bodies as well as the OEMs are however required
to propel the Indian auto electronics manufacturing in Tamil Nadu. Some of the key initiatives to ensure
the same and suggested by the industry captains in a recent event hosted by CII Tamil Nadu and are
enumerated in detail in this report. Some of the main areas highlighted, and which are critical to ensure
success, are listed below:
Initiatives to be taken by Government
1. Encourage localization content by OEMs of critical components
2. Facilitate the creation of an enabling ecosystem for auto electronics
3. Attract investment in this sub‐sector through a well‐defined policy and incentive mechanism
4. Encouraging Industry Academia collaboration to generate IP and increase value capture
Initiatives to be taken by Industry associations
1. Increase participation of MSMEs in the value chain through a structured approach and facilitating
necessary support needed
2. Leverage best practices from other countries through knowledge transfer sessions with the
industry
3. Facilitate setting up JVs and alliances for technology by encouraging collaboration with domestic
and foreign players
Initiatives to be taken by industry participants
1 Set up indigenous production to match global standards
2 Develop economies of scale by leveraging India for exports of automotive electronics
3 Set up JVs and alliances for technology and work collaboratively in non‐competitive areas
4 Tier 1 suppliers to take the lead in investments and encourage setting up upstream facilities
5 OEMs to support ‘deep’ localization initiatives for auto electronics
6 OEMs to help suppliers by supporting them in quality improvement initiatives andvendor
development activities
7 Focus on innovation to develop sustainable and competitive advantage

All the above activities have to be well defined and implemented in a holistic and time bound manner. CII
should take the lead in setting up a panel/committee to work together with the various participants and
arrive at a joint roadmap. Clear focus on implementation will drive success and ensure India takes its
rightful place in the emerging automotive world order.
Introduction

The Global Automotive Electronics market is valued at over USD 275 Bn in 2019 and is estimated to grow
at a CAGR of 6‐8 % from 2020 to 2030. Key trends impacting the auto industry today include new mobility
solutions, powertrain & vehicle system electrification, and advanced safety systems. Automotive
electronics plays a key role in these areas and helps deliver enhanced safety and comfort. Many of the
solutions offered by the auto industry today, which are designed to lower emissions, improve efficiency,
increase safety, provide convenience services are dependent on electronics. However almost 75% of the
auto electronics demand in India today is met by imports. The supply is dominated by global players, with
most of the auto electronic components imported from countries like China and Vietnam. High end
sensors are being imported from US and other European countries. Lack of a component ecosystem is one
of the major hindrances in the growth of indigenous auto electronics market in India.

Rapidly evolving regulations governing emissions and safety, as well as technological disruptions such as
connectivity and e‐mobility, would lead to a higher demand for automotive electronics across all vehicle
segments. Implementation of BS 6 has already added a lot of additional electronics components to the
vehicles, with components such as electronic fuel injection systems, oxygen sensors and intelligent battery
sensors. Increasing electrification of vehicles and long‐term trend towards autonomous driving and more
connected smarter vehicles will only increase the electronic content even further. By the end of this
decade, the electronics value share is expected to increase to account for nearly 45% of the total cost of
the automobile itself. With a significant share of the global vehicle sales, both in terms of domestic and
exports, India cannot afford to ignore this trend. The value chain and the associated profit pools are
shifting from traditional components to electronics and it is time for Indian automotive component
manufacturers to get their fair share, if India wishes to retain its position as a global manufacturing hub
and increase its relevance globally.

Post the current pandemic, this is therefore the right time for India to take advantage of the opportunities
when OEMs are contemplating shifting supply sources away from their traditional base, given the recent
supply chain disruptions. India can offer a viable de‐risking location alterative to them. The Tamil Nadu
Government is already taking several pro‐active measures to increase automotive investment in the state.
Given the fact that usage of automotive electronics is only going to increase going forward, this provides
a significant opportunity for Tamil Nadu to emerge as a viable manufacturing alternative to the other
Asian locations. Concerted efforts from all stakeholders, including the Government, OEMs, auto comp
manufacturers, and industry associations such as CII will be critical to make this happen.
Key Challenges currently facing the industry
The automotive electronics industry is a rapidly transforming one with huge growth opportunities. But
there’s a lot of gap between the potential of the sector and current status. There are several challenges
that need to be overcome to realize the full potential. Some of these are:

 Lack of a proper ecosystem

While several positive steps have been taken, the industry requires even more investment friendly
government policies and regulations. Most countries, including China, Japan, Korea, Taiwan and
Vietnam have been able to establish themselves as large global manufacturing hubs supported by
the right infrastructure, and policies which helped in setting up the right ecosystem for growth.

 Low scale of production resulting in low localization

The scale of production in India is still low in comparison to countries like China. Current low scale
and absence of latest technology translates into lower cost competitiveness versus global peers.

 Fluctuations in cost of electronic components

Since majority of electronic components are imported today they are subject to currency
fluctuations and resultant instability in the cost.

 Decision making of sourcing by global headquarters of multinational companies

Global sourcing decisions are largely driven by headquarters in case of multinationals. They
require reliability and assured quality of components, and hence would be hesitant to change
sourcing locations unless they are fully convinced. Only once we establish ourselves as a trusted
manufacturing hub for electronics will it attract the attention and interest of the global parent
organization.

Key Enablers and Actions for promotion of Automotive Electronics

manufacturing in Tamil Nadu
Tamil Nadu is one of the leading automotive clusters in the country and wishes to also take the lead on
manufacturing automotive electronics and establish it as a world class global hub.

Tamil Nadu has already taken several steps to promote automotive manufacturing:
 It has a well‐ developed electric vehicle policy (Tamil Nadu Electric Vehicle Policy 2019)

 TN Skill Development Corporation has recently announced the setting up of an Apexscheme

development Council for the auto & auto component sector
 CII is helping set up centers of excellence focusing on different arenas of manufacturing, such as
Industry 4.0, AI and IoT
Similarly, Tamil Nadu has also taken key steps to become electronics manufacturing hub:

 It has launched the electronic and hardware manufacturing policy to develop the semiconductor
fabrication (FAB) industry, for manufacture of devices such as Integrated Circuits (IC) chips

 The Govt. is targeting to attract at least two major FAB investments in the next three years. The
policy also plans to incentivize homegrown startups in the ESDM sector both in the component
and original equipment product manufacturing subsectors

 It has outlined skill training for more than 1,00,000 people by 2024 to meet the incremental
human resource requirements of the Electronics and Hardware Manufacturing sector

 Aligned to the National Policy of Electronics 2019, the state will provide special support for
developing core competencies in key areas such as Semiconductor fabrication (FAB), Fabless Chip
Design, Automotive/Aerospace/Aviation Electronics, etc.

Tamil Nadu has already become a leading player in consumer electronics manufacturing, driven by the
smart phone manufacturing cluster. Foxconn assembles I‐phone in Sriperumbudur near Chennai and
employs over 6,000 people. It is planning to invest further $1 billion to expand the plan to produce other
models currently manufactured in China. The electronics industry in Chennai consists of 300 active firms
spread across industrial estates in Guindy, Thiruvanmiyur and Perungudi, as well as new firms located in
special economic zones (SEZ) in Sriperumbudur, Kanchipuram District.

Success in both these areas (automotive and consumer electronics) can be effectively leveraged to
similarly focus on and create a cluster for automotive electronics through a well‐defined and structured
approach.

Many Asian countries today have emerged as global hubs for automotive electronics and have a well‐
established ecosystem. It is important to learn from best practices of other countries in terms of what has
worked and what has not. Incentives are only one part of the equation, what is even more critical is to
ensure all the enablers are in place to develop the necessary supporting framework and infrastructure.
There is an urgent need to create an ecosystem in India which will help OEMs reduce dependency on
imports. All the key stakeholders have a significant role to play in driving this initiative.

Role of Government:

1. Encourage localization content of auto electronics by OEMs

Localization of automotive electronics in the country will not only help reduce cost for OEMs but
also make their supply chain more reliable. Encouraging localization is therefore very important
and this will also drive innovation and creation of IP. With a large captive domestic market, the
opportunity exists for a large domestic play. With the current pandemic crisis, post unlocking the
global OEMs will have apprehensions around importing from China and will be keen to evaluate
other options. India with a solid manufacturing base can leverage this opportunity for exports.
India already is a preferred export hub for vehicles, engine and transmission components, and can
further strengthen its presence as a global manufacturing base for auto electronics as well.
Incentives provided by the Govt. can consider the criticality of the components, technology
content, and their potential for import substitution.
 2. Facilitate the creation of an enabling ecosystem

A key role for the Government is to help in the creation of an ecosystem where innovation thrives,
and companies can set up manufacturing and research units in this area. The right ecosystem in
terms of infrastructure facilities, IP protection, research support and increased collaboration with
academia will go a long way. Supporting policies can be replicated based on a study of other
countries in South East Asia which have been successful in doing this. Industrial zones earmarked
for automotive electronics can be set up near OEM clusters to ensure proximity and closer
collaboration. Government can also help support with reduced cost of borrowing for investment
in specified areas, especially for MSMEs.

3. Attract investment in this sector

Multinational companies are part of the global supply chain and will source from geographies
which will best meet their criteria of quality, cost and delivery. One of the highest value areas in
electronics is not in final assembly which most companies in India are engaged in but in
semiconductors. If The focus by Central and State Government has to be on attracting investment
in chip manufacturing and other areas of the value chain where profits can be maximized.
Investments in the electronic component manufacturing sector has to be targeted and increased.
The Government could proactively target the global companies and leading Indian business
houses to invest in this area which requires significant investment by providing competitive
incentives and encouraging set up of facilities through easier clearances and fast‐ tracked
processes. In turn this would anyway further increase assembly and other downstream work
leading to increased employment generation as well.

Government can support this through multiple initiatives:

 Set up focused roadshows and invite representatives of leading MNCs to set up new
facilities in the state

 Set up one stop window for all queries – permits, licenses, land acquisitions

 Single window clearance set up for facilitation of land acquisitions and other support
(utilities, etc.) to set up manufacturing units. Provide support for on‐ the‐ground
implementation

 Increase depreciation benefit for investments in R&D in specific hi‐tech areas, with clear
definition of what constitutes as ‘hi‐tech’

 Provide additional incentives and tax benefits to MSMEs, on pre‐defined criteria

 Ensure proper incentive schemes to increase more localization in the state. The incentives
should not be based solely on the state taxes paid, which typically results in excluding
export‐ based companies. The incentives should be provided based on local employment
generated, which will not differentiate between production for domestic or export
markets. The companies can be free to undertake contract labor, and specific preference
can be provided for locals
 4. Encourage Industry Academia collaboration

Education institutions in the country do not currently focus on technical or vocational education.
The investment in innovation and industry relevant research is minimal. The Government should
promote industry‐academia collaborations for joint research as well as support the institutions
with funds and incentives to drive innovations and research. It could introduce auto electronic
related courses to develop indigenous expertise on the field and promote collaborative research
in this are together with the industry. Acceleration & Incubation centers can be set up in these
institutions to promote new IP generation.

R ole of Industry Associations

1. Improve the scope for MSME’s

Significant proportion of the auto component industry in India comprises of MSMEs. They face
various challenges such as skills, availability of funds and also understanding key trends and
drivers. They have limited bandwidth and do not have sufficient visibility of the view of the OEMs
regarding the emerging trends as well as Government actions and policies to promote
investments in specific areas. Industry associations can support them through creating the right
forums for them to interact with Tier1s and suppliers. Exposure to world leading manufacturing
practices and processes will help them move up the value chain.

Some key activities could be:

 Help disseminate the relevant information to MSMEs and act as a bridge with the relevant
policy makers or departments

 It could hold periodic meetings every quarter to update and ensure MSMEs are onthe
right trajectory

 It should continue to organize events, masterclasses and industry meets on the topic of
auto electronics with auto component manufacturers, OEMs and Government

2. Leverage best practices from other countries

CII can support the industry by leveraging best practices from other countries in terms of the
support provided by the Government to focus sector companies and relevant incentives to
promote investment and innovation. The learnings should also be in terms of the relevant
infrastructure, logistics and other enablers.

India is unique in many respects, and so a lift‐and‐shift from other countries may not fully work,
but it may be a combination of best practices from other countries.
Some key activities could be:

 Organize events where prominent speakers from focus countries like Taiwan, Vietnam,
Korea, could join and talk about their experiences and activities undertaken by both the
Government and industry participants

 Based on the best practices it could develop a list of ‘asks’ from the stakeholders that
would ensure a fair growth of the sector. It could have meetings with the Govt. and
industry captains to finalize the way forward on any policy or other requirements

 CII should ensure the roadmap for implementation of the best practices and policies are
in place. These policies can be a mix of mid‐term and long‐term measures.

 It could set up a PMO to ensure a clear and time‐bound monitoring of implementation of

these policies

Role of industry participants (OEMs and Auto Component Manufacturers):

1. Ensure indigenous production matches global standards

Electronics manufacturing will have to meet global standards in terms of quality. Companies will
have to invest in terms of setting up global world class facilities to ensure quality while also looking
at frugal ways to ensure cost competitiveness, as well as reduce input costs through a structured
approach.

2. Develop scale by leveraging India for exports

The domestic suppliers should develop a roadmap for exports. They should aim to meet global
standards and adopt global technologies. They should focus on components which are useful not
just for the ICE passenger vehicles but also electric vehicles going forward. Given the emphasis on
adoption of Electric Vehicles globally and in India, manufacturing automotive electronics will be
the next growth area. Governments in all major countries are promoting the adoption of electric
vehicles which creates a lot of opportunities for domestic companies.

3. Set up JVs and alliances for technology, as necessary

Domestic companies may need to set up JVs and alliances with global players to get a head start
in this area. These can be technological alliances or even potential acquisitions that give access to
technology, products or marquee customers.

4. Tier 1 suppliers to take the lead in investments

Large Tier 1 suppliers should take the lead and set up manufacturing bases in this area. This will
help ensure that capability is also built further with their Tier 2 and Tier 3 supplier base. Tier 1
companies should take the lead based on discussions with the OEMs and the Government to
ensure the ecosystem is built. This will encourage Tier 2 and Tier 3 suppliers to also invest in this
area and scale up volumes competitively.
 5. OEMs to support ‘deep’ localization initiatives

OEMs will need to support the component manufacturers through a defined roadmap in terms of
future product categories so that there is reasonable visibility in terms of offtake. OEMs should
communicate their expectations to their suppliers. Consolidation of expectations from OEMs
would help obtain economies of scale and improve viability of the business case for investments
in this area.

6. OEMs to help suppliers drive innovation

OEMs can further support suppliers by helping them set up plants near their facilities to leverage
the existing facilities. They can form a strong supplier assistance group, which can help in terms
of process knowledge, R&D, etc. to meet product design and quality standards. Their vendor
development team can support the suppliers initially and also help in terms of Six Sigma
methodologies, data analytics, quick problem solving, and setting up a future ready and scalable
industry 4.0 facility.

7. Suppliers to work collaboratively, especially in ‘non‐competitive’ areas

In the current scenario, auto comp manufacturers are working in isolation and only a few
companies invest in innovation and research. Indigenous suppliers need to improve their
capability and bring themselves at par with their global counterparts. They can look at
collaborating in non‐competitive areas to improve return on investment and focus on cross‐
pollination as well as building scale.

CONCLUSION
The onus is not on the Government alone to ensure a healthy and growing industry, but all the industry
participants have a key role to play, as outlined above. A holistic and structured approach needs to be
undertaken to ensure Tamil Nadu develops as a strong manufacturing hub for an emerging new growth
area in automotive electronics.
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development
of India, partnering industry, Government and civil society, through advisory and consultative processes.

For 125 years, CII has been working on shaping India's development journey and, this year, more than ever before, it
will continue to proactively transform Indian industry's engagement in national development.

CII is a non-government, not-for-profit, industry-led and industry-managed organization, with about 9100 members from
the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 300,000
enterprises from 288 national and regional sectoral industry bodies.

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and industry to bring back growth to the economy and mitigate the enormous human cost of the pandemic by protecting
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Confederation of Indian Industry

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