Movers & Shakers Interview with Mr. Vasudevan Krishnamachari, President & Head, Light Vehicle Business Unit, Brakes India and Mr. Rajiv Balagangadharan, Head, European Business, Brakes India

1. Brakes India is a leading automotive component supplier both to the domestic Indian market and to global markets. How has the automotive and the allied auto components sector, both in India and globally, transformed over the last couple of years?

Mr. Vasudevan Krishnamachari (VK): In the last couple of years, mobility preferences in India have changed a bit towards personal mobility with an uptick in demand for private passenger vehicles (PVs). The Indian auto component industry clocked the highest-ever turnover of over ₹5 lakh crore ($69.7 billion) and grew over 32% in fiscal 2022-23 (as stated by Automotive Component Manufacturers Association of India – ACMA¹). Amongst PVs, SUVs are preferred, especially by urban customers. For component manufacturers, it poses a lot of challenges in terms of product technology, feature upgrades, time to market but, at the same time, it offers the opportunity to showcase technology and scale up on volume. Globally, the chip shortage related slow down post- covid seems to be on its way out and we see demand coming back. As a transformation, the shift towards alternate power trains away from internal combustion engines is happening slowly, but surely.

Mr. Rajiv Balagangadharan (RB): The global auto components industry is headed towards a major transition. In fact, we are already amid one and while this is comparatively slower for the commercial vehicle segment, the passenger car segment is witnessing phenomenal growth. Technology plays a big role here, be it electric vehicles (EVs) or demand for a superior, safer cabin experience such as quieter braking, Advanced Driver Assistance Systems (ADAS), etc.  For India, the rapidly growing auto market is expected to reach $300 billion by 2026.  Auto components industry exports are expected to grow 5X in the next 10 years (InvestIndia²).

2. What are some of the headwinds and tailwinds that Indian auto component manufacturers currently face?

VK: Post-covid, there were some disruptions in the global supply chain. Based on import dependence, some component manufacturers have been constrained to scale up. On the tailwind side, export opportunities are widening, which is good news for component manufacturers.

RB: Most Indian auto component manufacturers have global ambitions and are relatively geared up for it from a process, capacity, and quality standpoint. The headwinds we face are, therefore, more external than internal. We have rising and unreliable logistics costs, local content requirements and contractual issues like JIT requirements, leading to blocked working capital. The tailwinds supporting us are a skilled and young workforce, competitive manufacturing, which is world-class in terms of process control, quality, and engineering capabilities — which can help us address technology gaps.

3. There is massive C.A.S.E disruption in the automotive industry. How will rapid technological change impact auto component companies like Brakes India? In particular, what are your views on the shift towards electric vehicles (EVs)?

VK: Most auto component manufacturers have been gearing up for C.A.S.E related disruptions in the past decade by fine tuning their strategies, including product and process technology roadmaps. With regards to EVs, Brakes India is aware of the emerging expectations on foundation brakes and brake actuation and have aligned our technology roadmap. For example, foundation brakes expect the drag levels to keep going down for which Brakes India is working on ultra low drag calipers. Electric park brakes are preferred on EVs, and Brakes India already is in production with our indigenously developed motor on caliper. On brake actuation, the trend is to go increasingly vacuum less. I am happy to share that our engineers have a concept and prototype of e-Booster which will undergo validation before being offered to our customers.

RB: Brakes India, like all automotive companies in India, keeps up with the disruptive changes in the automotive industry by investing in R&D, keeping new customer requirements in mind. The advent of EVs has shifted the focus towards quieter braking which is extremely important particularly in EVs, compared to conventional ICEs. Defining the landscape for electric vs ICE vs hydrogen is difficult. Yet, as component suppliers, our teams are ready to evolve with the ever-emerging automotive landscape.

4. The aftermarket has to engage with trends like vehicle electrification, new retail models and, on the more negative side, with counterfeit parts. How do you see the aftermarket evolving and what should companies do to adapt successfully?

VK: We are discussing two aspects here. One is the evolution of aftermarket on scope of parts & nature of service and another the business model on how the part reaches from manufacturers to the end user. On the first one, naturally, the smaller number of moving parts would mean less wear and tear that will change the qualitative nature of parts and frequency of replacement will undergo change. Manufacturers are taking note of this and gearing up. On the second aspect, namely, the business model, digitization will drive innovation and ensure genuine parts are available to users. In my personal view, there is good scope to reduce counterfeit parts if genuine component manufacturers and their distribution channels are open to using technology options available now. At Brakes India, we have introduced certain features to our packaging such as logo moulding that makes it difficult to replicate. However, proactive customer education continues to be key for us.

Overall, there is a bright future for the aftermarket industry, especially in India where it is expected to reach $32 billion by 2026 (InvestIndia²).

RB: Globally, the aftermarket space is evolving owing to emerging trends. The industry size was valued at over $427 billion in 2022 and is expected to register a compound annual growth rate (CAGR) of 4.0% from 2023 to 2030 (Grand View Research, Inc³). There are requirements for a highly skilled workforce that can actively work on software, digital requirements, and big data to predict customer behavior and offer better customer services. It will happen, but rather gradually.

Tackling the movement of spurious parts in the aftermarket space has been and continues to be one of the biggest challenges. Digital supply chains, penetration of e-commerce, continuous innovation in packaging and evident identifiers that are clearly visible on the product are some of the measures manufacturers are using with the hope of eventually reducing the issue.

5. You supply parts for both passengers as well as light & heavy commercial vehicle segments. What do you see the main drivers and challenges in these segments?

VK: Given the low penetration (cars per 1000 people), passenger car demand in India has been driven by urbanization, personal mobility preferences, rise in disposable income and finance availability, apart from fuel prices/running costs. However, on goods carrying commercial vehicles, demand is driven by road infrastructure spend, increase in economic activities, freight rates (and returns for fleet). Within that space of commercial vehicles, demand of heavy & light commercial vehicles depends on how much last mile connectivity is needed, which requires smaller vehicles. For example, the increase in e-commerce activities is directly related to the demand for small commercial vehicles.

RB: The global passenger car segment bounced back rapidly in 2022-23 reaching a market size of over $1,549 billion in 2022 and is projected to hit around $2,676 billion by 2032, growing at a CAGR of 5.62% from 2023 to 2032 (Precedence Reporting⁴). Alongside the above reasons, rising incentives in the adoption of green mobility has been one of the reasons for global growth.

In the commercial vehicle segment, global market size is projected to grow at a CAGR of 3.7% from 2023 to 2030 (Grand View Research⁵). Factors supporting this have been the implementation of vehicle scrappage policy, aggressive investment in infrastructure and rural development, and increased construction & mining activities, among many others.

It is very simple: growth in a mature market is at the pace of economic growth and is supported by regulatory requirements such as environmental laws.

6. How have customer expectations shifted over the past few years? For instance, trends seem to indicate that Indian consumers who have traditionally been known for their price-sensitivity now equally emphasize quality and advanced features. What about your foreign customers? What are their focus areas?

VK: Customer expectations are articulated by offerings in the market. Price sensitivity is a result of the value offered on the table. If advanced features of good quality are made available at reasonable price, customers welcome it. With the penetration of mobile phones, customers are tech savvy and expect similar features of performance and comfort in the cars they drive. In addition, cars are an expression of lifestyle for aspiring customers and, hence, expectations from a car are well past that of a vehicle taking them point A to point B. Regarding foreign customers, it depends on which geography one is referring to as each country is at a different point of evolution in terms of needs and regulations. However, certain common themes across geographies are to do with product performance, lower emission and comfort features representing lifestyle.

RB: Many European customers are similar to Indian customers. There is a focus on quality, advanced features, and price sensitivity. In some markets in Europe, I would say the only shift has been from one of local brand loyalty to an acceptance that an international brand could provide as good a product and service as a local one.

7. Product innovation is one of the key reasons for your success. A lot of your product development happens in-house. Do you see India as a manufacturing hub for high quality, technologically advanced automotive exports? Or do regions like the US and Europe still have the edge?

VK: India has a unique advantage in terms of its young and aspiring talent pool. This gives a good platform for Indian manufacturers to choose their field of play. Depending on the maturity of product under consideration, one can excel in good quality manufacturing or frugal innovation to reduce product development costs for high technology products. Today, I would hesitate to generalize and say that the US or Europe has an edge.

RB: Regarding high quality, Indian auto component suppliers are already globally competitive. As a matter of fact, I would say from a cost standpoint, we are competitive in delivering the highest quality at lower costs. The US and Europe still have an edge in technology, but I feel that India is catching up, either through in-house development or simply by buying and owning the technology. Being a low-cost quality manufacturer with availability of talented skill force at a good cost continues to set India apart.

8. You have sizeable exports to Europe and the region is seen as key to future plans. What is your European strategy? What role do you envisage Europe playing in driving business growth? Particularly in Europe, we have witnessed a phase of consolidation in the distribution channel for a few years now, and this is expected to continue. How do you see that impacting your business?

VK: Europe as a region has been very important for us and will continue to be so. The past 20 years witnessed European OEMs setting up manufacturing in India which has given us the experience in doing business with them. We now believe we can take it to the next logical step of supplying their global needs. From Brakes India, we have appointed our Europe Head, Mr. Rajiv Balagangadharan, and are in the process of setting up our European office with supporting engineering and sales teams.

RB: Our exports to Europe have primarily been that of iron castings, currently holding roughly 20% of the total revenue. Our ambition for Europe is to get more OEM brake business. Therefore, our initial focus in developing business in Europe will be in the OE segment across passenger cars, light and heavy commercial vehicles and off-highway vehicles. We see a lot of opportunities in the global markets for Brakes India across the segments with a clear vision of doubling our exports by 2027. As for the aftermarket business, we will study the market and devise a strategy for entry a couple of years from now.

9. As the shift towards software driven vehicles becomes more pronounced and cars become “computers on wheels”, how do you foresee engineering and development capabilities changing? Is the Indian automotive sector ready? Do we need to start actively looking at reskilling workforces?

VK: Indeed, the automotive industry landscape is changing from being predominantly mechanical to a good mix of mechanical/electrical and electronics engineering with associated software. Of course, we need to refine the skill sets of our teams and create an ambience for all these engineering faculties to co-exist in shaping up the `computer on wheels’. In fact, two areas of our immediate focus are indigenous development of electro-mechanical products such as ABS & advanced predictive noise, vibration, harshness (NVH).

RB: Today, there is a lot of focus on enhancing driver comfort and making the vehicle more autonomous. So, developing aftermarket electronics, informatics, etc., will come into focus. I believe there is already enough talent in India as well as other European markets. However, the need for reskilling the workforce and hiring niche experts will be the key.

10. Make-in-India resonates with several of Brakes India’s initiatives. But what do you think the Indian automotive industry needs in terms of regulatory / policy support to realize the Make-in-India vision to its fullest extent?

VK: Let us look at Make in India from two different lenses. Firstly, for product development we need to identify and retain talented engineers in India and provide an ambience of opportunities and growth. Secondly, for manufacturing and supply chain, infrastructural support like electricity, water and road connections to logistics hubs/ports will pave the way for the kind of scaling up that is required to export in a big way. Any policy/regulatory changes in these two dimensions will be welcomed by component manufacturers.

RB: In general, for make-at-home policies, governments need to encourage manufacturers with investments in good quality and competitive infrastructure, like the availability of roads for easy access to ports, single window availability for all government clearances, competitive energy prices, skilling of labour, etc. In a competitive environment, manufacturers naturally desire to stay at home rather than look for more competitive manufacturing environments. India is a fairly significant market today and European manufacturers are expected to build the Indian market/manufacturers.

11. Digitalization is regarded as inevitable. What kind of roadmap do you see unfolding in the automotive /auto components industry?

VK: Digitalization is a huge mine of opportunities. In my personal view, while some companies and industries may approach this top down, what may suit the automotive/auto components industry in India is bottom up. I see many pockets of projects/digital initiatives bringing specific benefits which then will be unified to evolve into a companywide approach after some time. Depending on each organization, the starting point may be in one area, say supply chain transparency, which then translates into other areas or another company may start from product development and then move to other functional areas.

RB: In the case of Europe, digitization of business processes to a relatively common standard is apparent and working in the OEMs and Tier 1 manufacturers, i.e., implementing global ERPs like SAP. In case of smaller firms, especially those not too close to big cities, there is price sensitivity and a need for local support. Therefore, these firms tend to go for locally developed ERPs. So, I do not see digitization as inevitable in the smaller firms.

12. Brakes India has always been big on sustainability. For instance, your partnership with the Volvo Group for “green” castings, the receipt of the Deming Award and CII GreenPro Certificate for your iron castings Foundry, the use of renewable energy for three decades. Can you tell us a little more about why sustainability is so critical and Brakes India’s approach to this idea.

VK: Brakes India’s journey towards sustainability was by choice. It was a part of the vision of our management team much before it became an industry wide topic – be it our commitment to have trees in our factory premises, use of renewable energy or continuous improvement initiatives to reduce energy consumption. We are bringing all these initiatives under the broader umbrella of sustainability, and it is very critical for us as we start catering to global OEM needs. We believe all things being equal, this approach of ours could be a differentiating factor going forward.

RB: Sustainability and the environment have always been a big part of our culture. Even with challenging products like castings, we have tried to be a zero-waste manufacturer. Sustainability is crucial at a time when we can physically see the effects of climate change. Brakes India is aware of this and has always endeavored to have green sites and has contributed to the welfare of the community around us.

13. “Partnering with customers to achieve their net zero vision.” What can the automotive and auto components industry do to accelerate this objective?

VK: While this vision is noble, I personally think there needs to be a lot more awareness at the ground level, especially when you go from OEMs to Tier 1s all the way down the supply chain. Each organization should do a health check to know the status and the set of actions may be different and unique for each component manufacturer. There is a shared responsibility for OEMs and Tier 1s to hand hold the supply chain – Tier 2 to Tier-n towards this vision.

RB: If customers want to achieve zero net vision, it needs to be a joint effort. OEMs need to support and encourage their suppliers on sustainability initiatives and help them achieve cost-effective solutions.

14. Where would you like to see the Indian automotive / auto component industry in the next decade? And what long-term goals has Brakes India set for itself?

VK: It is broadly believed that the next decade belongs to India, considering mega trends on demography, digitalization etc., and the Indian auto industry is no exception. I see automotive OEMs and component manufacturers scaling up to the opportunities presented by the global turn of events and benefit from that. With respect to Brakes India’s Light Vehicle Business Unit, our goal is to use our domestic market leadership as a platform and establish ourselves as a global supplier of braking products.

RB: With its manufacturing excellence, I see India as a global automotive component hub in the next decade. Brakes India has a primary goal – to be a global player and the preferred supplier for all our customers. We have been able to hold the leading position in the domestic market for decades. Exports are one of the biggest focus areas currently.

Sources:

1. https://www.fortuneindia.com/enterprise/auto-component-industry-clocks-highest-ever-turnover-of-56-lakh-cr-in-fy23/113668#:~:text=The%20component%20industry%20sized%20up,lakh%20crore%20(%2420.3%20billion).
2. https://www.investindia.gov.in/sector/auto-components#:~:text=The%20rapidly%20growing%20auto%20market,5X%20in%20next%2010%20years.
3. https://www.grandviewresearch.com/industry-analysis/aftermarket-automotive-parts-market
4. https://www.precedenceresearch.com/passenger-cars-market
5. https://www.grandviewresearch.com/press-release/global-commercial-vehicle-market#:~:text=The%20global%20commercial%20vehicles%20market,3.7%25%20from%202023%20to%202030.