India’s rapidly growing EV industry faces a capability gap in developing and producing high-technology components that can meet modern technology demands because about 80% of component manufacturers are small businesses built for traditional mechanical parts rather than advanced electronics and software. The capability gap involves areas such as batteries, power electronics, embedded software, advanced electronics, and system integration.
India is shifting more towards electric vehicles as its automotive supply chain expands. Original Equipment Manufacturer (OEM) sourcing of auto-components is expected to increase by 16% to 6.6 lakh crore by FY26 against components’ exports valued at around 2.1 lakh crore. However, import charges rise at a greater rate, with China covering about 36% of all the auto component imports India uses.
The capability challenge is particularly significant for small and medium-scale enterprises (MSMEs), which constitute almost 80% of Indian auto-parts producers. Though electronics, embedded software, advanced engineering, and system integration are key factors for competitiveness, a lesser than half the small and medium scale enterprises lack the capabilities required to develop and manufacture components as per the modern industry demands. Embedded software capability is estimated to be found in only 10% of domestic suppliers, whereas system integration, and product-development capabilities are around 14%.
