The automotive industry in India has come a long way from its earliest stages of trial and tests. Over the decades, India has made a mark in the global automotive industry. As competition on the worldwide arena of the automotive industry has shot up, hence in such scenario, Enterslice understands the ramifications..

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Automotive- Brief Overview

The automotive sector in India is in the midst of disruption, thanks to evolving business models and regulatory compliance. The automotive industry across the globe is one of the largest manufacturing sectors which is innovative as well as technology focused. Some automotive markets are expected to surge forward, yet other markets are expected to stabilize. Corporate resiliency will be required to navigate through the future disruptions which can bring long term sustainability of profits and growth to this industry. As the automotive industry undergoes a definite shift, competition on the global arena has shot up. Hence in such scenario, Enterslice understands the ramifications of this change and can offer solutions to complex issues facing this evolving industry.

History of the Automotive Industry

The United States of America boasts of one of the largest automotive markets in the globe. In the year 2018, US light vehicle sale clocked 17.2 million units. Overall the US is the worlds’ second largest market for vehicle sale and production.

After Honda started its first US plant, almost all major automakers have produced and invested in billions in the US. The Automotive Industry is at the forefront of innovation with new R&D initiatives that are shaping the industry to respond to the opportunities in a better manner.

Globally this industry has a large consumer market, highly skilled workforce, better infrastructure and other incentives.

Induction of technology in Automotive Industry

Induction of advanced technologies has transformed this industry. It has presented massive value offering for consumers. Therefore suppliers should reassess their long-term product or programme and technology roadmaps in order to stay ahead of the competition. They also need to understand regulatory needs as this industry faces regulatory acceptance issues. Advanced technologies such as robotics, business intelligence and data analytics can ensure product of high quality and also ensure less recalls to the industry. Further safeguarding the intellectual property of a company, their data privacy and its security is the norm and is the strategy of automotive suppliers.

Various competencies present currently will become obsolete with the intense competition from technology players and products in this industry. Therefore suppliers must form capabilities for developing customer-oriented products by performing location optimization analysis and through value chain analytics. Investing in research for future technologies and product innovation will provide platform for future products that fall in place with consumer preferences.

Market Size of the Automotive Sector

The production of automobile domestically has surged at 2.3% CAGR between FY 2016-20 with 26.3 million vehicles being manufactured in the country in FY 2020. Total domestic automobile sales have also increased at the rate of 1.29% CAGR between the said period. In FY 2021, the total production of passenger vehicles reached 22,652,108.

In October 2021, the total production volume of passenger vehicles, three wheelers, two wheelers and quadricycle reached 2,214,745 units. The Indian domestic auto market has been dominated by two wheelers and passenger vehicles and passenger car sales have been dominated by small and mid-sized cars. Two wheelers and passenger car have accounted for 80.8% and 12.9% market share. During July-September 2021 quarter, luxury car market witnessed sales of 8.5k units.

As far as Electronic vehicles are concerned, India's electric vehicle finance industry is expected to reach 3.7 lakh crore rupees in 2030. Further, a report by India Energy Storage Alliance estimated that EV market in India is expected to rise at a CAGR of 36% until 2026. The projection for EV battery market is expected to expand at a CAGR of 30% during the same period.

The entry of new market players in the coming years will propel this sector even further.

Regulations and Legislations applicable to the Automotive Sector

Right from the setting up of an automotive business to dealing with the end customers, countless regulations govern this sector. We have categorised the types of legislations and regulations applicable to the automotive sector as per different stages.

Setting up of the business

The regulations or legislations applicable while setting up of the business includes the following:

  • Companies Act 2013;
  • Partnership Act;
  • Society Registration Act 1960;
  • Shop and Establishment Act 1953;
  • Factories Act 1956.

Regulatory Laws

  • Motor Vehicles Act;
  • Central motor vehicle rules, 1989.

Taxation Laws

  • Income Tax Act, 1961: Transfer pricing regulations;
  • Custom duty;
  • Research and development cess act, 1986.

Environmental Regulations

  • Environment Protection Act, read with Environment (Protection) Rules 1986.

Competition Regulations

  • Competition Act, 2002

Employment related legislations

  • Payment of Wages Act – 1936
  • Industrial Disputes Act – 1947
  • The Employee’s Compensation Act, 1923
  • Minimum Wage Act – 1948
  • Payment of Bonus Act – 1965
  • Payment of Gratuity Act – 1972

Intellectual property regulations

  • Trademark Act, 1999
  • Indian Patent Act, 1970
  • Copyright Act,1956

Automotive Sector Compliance

While compliance refers to the process of adhering to the rules and regulations laid down, they are vital in any sector or organization. Compliance in the automotive sector is divided into various categories ranging from regulatory compliance, taxation related compliance, environment and safety compliance, etc.

No other sector has been affected most by the evolving environmental related regulations as the automotive sector. This is owing to the fact that the automotive industry has been one of the largest emitters of Co2 and other harmful gases. Hence automotive sector has to comply with environmental norms strictly.

One needs to stay updated on compliance requirements and comply with relevant environmental norms, prevent and mitigate adverse environmental impact while complying with workplace health and safety regulations.

Growth opportunities for Automotive Industry and Suppliers in the future

The growth opportunity for automotive industry in the near future lies in:

  • Electric drive;
  • Battery/fuel cell;
  • Electronics;
  • Infotainment and Communication;
  • Robotics and Industry 4.0;
  • Sensor technologies and other technologies.

Growth opportunity for automotive suppliers in the near future lies in:

  • Technology, where they must develop and acquire technologies to withstand the test of times in the marketplace;
  • Mergers and acquisition which will help suppliers to grow shareholder values as well as get funding for research and development;
  • Diversification wherein suppliers need to diversify to explore their top growth opportunities;
  • Realignment of vendor and supplier contracts.

Tips for Automotive Suppliers to adapt to the market disruptions

The following tips can be looked at:

  • Innovation

Innovation brings an essential new trend in terms of how we look at the process of manufacturing.

  • Consolidation

The suppliers need to look at the components that are being manufactured to see if there are synergies for consolidation.

  • Cost containment

The suppliers need to focus more on costs while leveraging innovation in product development and product manufacturing in order to maintain competitive position and also ensure to create long-term market value to investors.

  • Gaining Understanding

Suppliers can adapt to the disruptions in the market by gaining an understanding of evolving market demands and unlocking ways to apply expertise to the new markets.

Road ahead for Automotive Industry

Automotive players are looking to safeguard themselves through strategic partnerships and M&A. Some of the players are looking at competitors to fill up the gaps in their technological aspect, yet other companies are depending upon digital transformation initiatives to bring efficiencies by investing in technological solutions such as Blockchain and AI.

However, this may not be enough as doing well in a new global automotive industry will ask for a reinvention in all aspects of the business. This includes business model, manufacturing process and customer experience. The digital technologies need to be combined with an integrated organizational design.

How can Enterslice help?

Enterslice offers Automotive Services in the following areas:

  • Audit;
  • Tax;
  • Consulting.

Audit- Enterslice can assist its clients with assessment of accounting policies and help in optimizing policy decisions, provide transaction related services, help in accounting for business combinations, audit of financial statement, reviews and compilations, employee benefit plan audits, carve out financial statement audits, technical accounting consulting among others.

 Tax- Enterslice tax professionals can provide insights involving domestic and international tax structuring, credits and incentives, global compliance and statutory reporting, International tax services and structuring,  M&A diligence and planning, transfer pricing Paper works and planning, tax technology selection and optimization services.

Consulting- Our Consulting specialists will provide an array of services on issues that focuses on automotive industry. Whether it is working with technology or management consultants, Enterslice can support in the key areas concerning automotive industry such as business valuation, business process assessment, business intelligence, cash management, IT services, Financial accounting outsourcing, fraud detection and prevention, inventory management and control, internal audit services, litigation and dispute advisory, M&A advisory and due diligence, security and risk mitigation, technical accounting consulting, Digital transformation, ERP assessment and implementation.

Frequently Asked Questions

The issue of poor air quality and increase in congestion has been a cause of concern within the automotive industry.

Induction of advanced technologies has transformed this industry. It has presented massive value offering for consumers.

The automotive markets such as China are expected to continue on its growth path and other markets like Japan and South Korea are expected to stabilise.

Suppliers should focus on capability building to develop customer oriented products by performing location optimisation analysis.

Regulations governing this sector can be divided into various categories ranging from incorporation laws, taxation rules, environment and safety compliance, etc.

The automobile sector has been supported by various factors like availability of skilled labour at lower cost, robust R&D centres, and low-cost steel production.

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