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Climate change and environmental issues are an active concern for businesses and nations the world over. India, with 10 of the most densely populated metros in the world, has experienced this first hand, especially when it comes to air pollution. So it was a heartening moment when in January 2016 the Union Government decided to accelerate India’s automotive emissions standards. The result - the Indian automotive industry quickly began gearing up for a major technology transformation.
BS-IV to BS-VI: challenges in technology
The change from BS-IV to BS-VI in India’s vehicle emissions standards is an ambitious venture that has far reaching consequences for the automotive components industry at large. By leapfrogging from BS-IV to BS-VI standards, India aims to be at par with European nations in terms of emissions standards. In real terms this means that from 2020 onwards Indian automotive companies will need to develop and incorporate a number of new technologies to their product line to reduce NOx emissions by 25% in petrol engine vehicles and by 68% in diesel engine vehicles.
Among the many technological upgrades needed will be the incorporation of on-board diagnostics (OBD) systems which are mandatory under the new policy. OBD systems will conduct real-time monitoring of vehicle generated pollution in order to ensure that emission control components operate at optimum efficiency and are able to detect malfunctions quickly for immediate fixing.
The emission control components that the OBD will monitor are the key upgrades that will improve the engine and exhaust systems, bringing them up to BS-VI standards. The two critical engine fitments typically required under these norms will be the Diesel Particulate Filter (DPF) and the Selective Catalytic Reduction (SCR) module. The DPF system is necessary to reduce particulate matter (PM) emissions in diesel vehicles, while the SCR module is required to reduce NOx emissions.
This upgrade will directly impact the supply chain and production costs. It is expected that this will increase the end price of petrol cars to the tune of INR 20,000-30,000 and that of diesel cars by as much as INR 75,000-1,00,000. This rise in overall production costs will have an inevitable impact on original equipment manufacturers (OEMs) that have a large market share in diesel cars, as well as auto suppliers that have a strong dependence on diesel car OEMs.
Impact on automotive OEMs
The key challenge in the Indian market is the lack of indigenous production of these technologies, at least not as a norm. Indian automotive OEMs and auto component suppliers that produce fuel injection systems, engine components, exhaust systems, emissions monitoring electronics, gas sensors, ignition controls, electronic control unit and other enhanced components, face a business challenge as they attempt to comply with reforms and ensure growth.
And while this challenge is sure to impact nearly every company that manufactures fuel injection, exhaust, and other supplementary ICE related systems, not all companies will struggle equally. There are certain players who are significantly better positioned to utilize this transformation challenge as a means to propel their growth and achieve significant gains. Companies like Bosch and Denso that have operations in India and the world, benefit from their international market experience. As suppliers to the European market, their technology already conforms to the BS-VI requirements which gives them an immediate competitive advantage in the Indian market as they would find it easier to bring this to their Indian factories.
Globally, Delphi Technologies has launched its second-generation SCR modules with deals already in place with three major international customers. Another such company, Continental Automotive, has developed technology with multiple innovative solutions that not only improve NOx conversion efficiency with closed-couple mounting, but also with an architecture design solution that makes this solution more adaptable to older and newer models alike. On the other hand, Indian companies like Tata Cummins, Lumax Auto Technologies, Badve, and Ucal Fuel Systems, face a challenging journey ahead - of innovating or acquiring technology from elsewhere.
It’s clear that the Indian automotive components industry is at an interesting cross roads in its journey and has reached a critical inflection point. Industry players have a few strategies they can adopt to address this challenge such as acquiring technology from their international parents to developing it in-house or in collaborating with global partners. The singular goal however remains the same – to enhance their competitive potential while adhering to the new norms.
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