Surging Auto Gear Exports from China Amid Abandonment of Zero-Covid Strategy

By IndraStra Global Editorial Team

Cover Image Attribute: A file photograph of automotive workers in Yiwu, Zhejiang province, at Zhejiang Geely Holding Group's car production line, diligently assembling engines. / Source: Visual China/Caixin Global

In the ever-evolving landscape of global automotive supply chains, the dynamics of component sourcing have taken center stage. With the pandemic-induced disruptions fading, global automotive giants are again turning their attention to China, resuming their component sourcing activities. However, with its resilient growth trajectory, India seems poised to weather this shift and continue its upward trajectory in the export of auto components. While the "China-plus-one" approach adopted by multinationals seeks to diversify supply chains and mitigate risks, India must tread cautiously to protect its market share from China's allure.
Industry experts warn that China's endeavors to woo back its erstwhile customers who sought alternative suppliers during the pandemic due to Beijing's zero-Covid policy and geopolitical developments necessitate vigilance on India's part. Despite this, multinational automakers are reluctant to sever ties with their Chinese suppliers, as the country still offers significant economies of scale for essential components. China's fiscal years 2022 and 2023 witnessed a remarkable recovery in automobile ancillary exports, with a 27% surge to $188 billion in FY22 and a 6% increase to $201 billion in FY23. In comparison, India experienced a faster growth rate in FY22, with exports soaring by 44% to $19 billion. However, the pace slowed in the last fiscal year, reaching $20.1 billion, marking a modest growth of under 6%.
Despite the shifting dynamics, several multinational automakers have divulged that while they relocated their critical and aftermarket component businesses to India, they have recently resumed sourcing from China. An anonymous executive from a US-based tier-1 supplier revealed that since 2021, their company had shifted 35-40% of its sourcing to India. However, they reverted to sourcing from China for components such as ball bearings and electrical parts, where China holds a clear advantage in economies of scale. This hesitance to disclose details arises from concerns over potential backlash in China, which highlights the intricate balancing act these companies must perform.
Industry insiders stress that China's attractive investment climate, including interest subvention, machinery and R&D subsidies, and other incentives, positions it as an appealing destination for mass production and competitive pricing. They advocate for India to consider incentivizing international purchasing offices to bolster sourcing from the country. Despite the challenges presented by China's aggressive strategies, the Indian component industry remains optimistic about its prospects for robust growth.
Vinnie Mehta, director-general of the Automotive Component Manufacturers Association, expressed the industry's ambitious goal of doubling exports within the next 4-5 years, aiming to surpass the current $20 billion mark. Mehta also highlighted the significance of Europe and North America, which account for 31% and 30% of India's exports, respectively. Notably, even amidst recessionary trends in these markets, exports from India have demonstrated resilience.
Kavan Mukhtar, head of the auto practice at PwC, emphasized the substantial growth opportunity for the Indian component industry, with over 30 international purchasing offices in India formulating ambitious sourcing plans for the next three years. This presents a golden opportunity for India to capture a significant share of the global sourcing market.
ZF Group, a leading German tier-1 supplier, has set a target of sourcing 2 billion euros worth of components from India by 2030. Since 2019, their sourcing from India has enjoyed a compounded annual growth rate of 20%. Suresh KV, President of ZF India, stated that their sourcing primarily focuses on machined castings and forgings, but they are now expanding into electrical parts, further diversifying their portfolio.
The recent chip shortage and supply chain disruptions have underscored the perils of relying on a single country for sourcing. Suresh KV pointed out that a major US-based truck and bus manufacturer experienced a staggering fivefold increase in sourcing from India over the past three years. While actively seeking to diversify at least half of their sourcing away from China, they also acknowledge the inescapable reality that China, with its mass production capabilities, competitive pricing, and government benefits, cannot be disregarded as a supplier.
In conclusion, the global automotive industry finds itself at a crossroads in terms of component sourcing. While China's resurgent dominance demands attention, India's steadfast growth and burgeoning international purchasing interest present a unique opportunity. Striking a delicate balance between the two behemoth economies is crucial to mitigating risks and harnessing the benefits of diversified supply chains. As the automotive landscape continues to evolve, prudent decision-making and adaptability will be essential to thrive in this competitive era of global component sourcing.

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