India’s auto-component industry is growing quickly, but the move towards electric and software-heavy vehicles is creating a different test for many smaller firms in its supply chain. Mechanical manufacturing remains essential, yet Vector Consulting Group’s white paper argues that a rising share of vehicle value now sits in batteries, power electronics, sensors, embedded software and systems that must work together.
For India, the issue is larger than one technology cycle. Auto suppliers support manufacturing jobs, exports and vehicle production across the country. If smaller component makers cannot upgrade alongside larger manufacturers, India could add vehicle production without capturing as much of the higher-value engineering work.
A record market is changing shape
The industry enters this transition from a position of considerable scale. The Automotive Component Manufacturers Association of India, or ACMA, says the sector recorded turnover of ₹7.59 lakh crore in FY2025–26. Supplies to original equipment manufacturers, the companies that make vehicles, rose 16.3% to ₹6.52 lakh crore. Exports reached ₹2.13 lakh crore, while imports were ₹2.25 lakh crore.
Rounded figures reported elsewhere as ₹6.6 lakh crore of OEM supplies and ₹2.1 lakh crore of exports therefore refer to FY26, not FY2025. That correction matters because it places the capability discussion against the latest completed financial year and avoids comparing figures from different periods.
Growth alone does not show where the value is being created. Electric vehicles and other newer platforms require suppliers to combine manufacturing with electronics, software and product-development skills. Larger suppliers may be able to fund that transition more readily. Smaller firms often have less room for long research programmes, specialist hiring or equipment that may take years to repay.
What the Vector study actually found
The Vector paper examines that gap through a convenience sample of 21 senior executives at auto-component MSMEs across India, collected in July and August 2026. The firm also held semi-structured discussions with 10 executives from Tier-1 and Tier-2 suppliers.
Respondents estimated that only about 10% of MSME suppliers had embedded-software capability, while about 14% had systems-integration and product-development capability. The paper also says 95% of survey respondents believed MSMEs were not investing quickly enough in capabilities needed for future growth.
Those percentages need careful reading. They describe the perceptions of a small, non-random group of experienced executives. Vector itself says the findings are directional and are not statistically representative of India’s automotive MSME supplier sector. They identify a concern worth examining, but they do not prove that nine in ten suppliers lack a particular skill.
Why operating pressure can slow upgrading
The study argues that operational strain can make the skills gap harder to close. It reports that 95% of surveyed firms held between 30 and 60 days of inventory, while 71% collected receivables after more than 60 days. Vector also describes earnings before interest, tax, depreciation and amortisation margins of around 12% as limited room for a capital-intensive industry.
Inventory and late receipts tie up money that could otherwise support training, engineering teams or product development. But the report’s estimates should not be treated as the financial position of every supplier. Component businesses differ widely by product, customer mix, size and bargaining power.
Ravindra Patki, a managing partner at Vector, told The Times of India that policy can create a better environment, but cannot close the capability gap on its own. That is a useful distinction. Incentives may lower the cost of investment, while suppliers and their customers still have to decide which skills, partnerships and products are commercially viable.
What a practical response could include
Vector proposes improving production flow, reducing avoidable inventory and using the resulting financial headroom to build advanced capabilities. It also points to external capital, collaboration with vehicle makers and stronger relationships across supplier tiers. These are the consultancy’s recommendations, not guaranteed outcomes.
A broader response would also require evidence beyond one survey: clearer data on which component segments face the largest shortages, whether training produces usable skills, how quickly domestic sourcing is increasing in advanced parts, and whether smaller firms can earn adequate returns from the transition. Industry bodies, vehicle makers and governments can make those measures easier to track.
For workers and regional manufacturing clusters, the central question is whether upgrading spreads through the supplier network rather than remaining concentrated among a few large companies. The Vector study offers an early warning, not a final scorecard. The next test will be whether firms can turn strong demand into durable engineering capacity without weakening the smaller suppliers that much of the industry depends on.
