Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs

India's transition to electric vehicles (EVs) presents a dual reality for automotive MSMEs, which comprise 80% of the auto-component manufacturing base. While the decline of internal combustion engine (ICE) components threatens traditional revenue streams, the shift creates opportunities in high-value EV components like battery housings and motor casings. However, MSMEs face significant barriers, including high capital expenditure, a 'Valley of Death' in prototype financing (TRL 4-6), and a shortage of skilled labor. To address these, the report recommends the establishment of the Automotive Component Technology Upgradation Financing Facility (AC-TUFF) to provide blended finance and risk-mitigation tools.

• MSMEs are critical to India's automotive sector, constituting 80% of the auto-component manufacturing (ACM) base and contributing nearly 30% of total industry output.
• The transition to EVs poses a severe risk to ICE-specific components, with estimates suggesting 90% of ICE powertrain components could become obsolete, affecting the 39% of ACM industry turnover derived from engine, transmission, and steering components.
• EV adoption in India is projected to grow substantially, with EVs expected to capture nearly 49% of all new vehicle sales by FY 2035, reaching approximately 24.6 million units.
• MSMEs face five primary challenges in the EV transition: market uncertainty and supply chain risks (including import dependence), limited access to affordable finance, technical and skill gaps, policy limitations where incentives favor larger firms, and a challenging business environment characterized by a lack of pre-existing OEM relationships.
• There is a critical financing gap for MSMEs during the prototype development stage (Technology Readiness Level 4-6), described as a 'Valley of Death' where public support is capped and private equity/venture capital appetite for pre-prototype hardware is low.
• The report proposes the Automotive Component Technology Upgradation Financing Facility (AC-TUFF) to provide concessional and blended-finance solutions, de-risk investments through first-loss guarantees, and support technology and skill development.

APA

Khurana, S., Kumar, M., Sundaravaradan, S., Kumar, K. S., & Sethi, R. (2025). Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/06/Navigating-the-EV-Shift-Opportunities-and-Challenges-for-Automotive-MSMEs.pdf

Chicago

Khurana, Saarthak, Manish Kumar, Sudharshan Sundaravaradan, Krishna S. Kumar, and Rishabh Sethi. Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs. Climate Policy Initiative, 2025. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/06/Navigating-the-EV-Shift-Opportunities-and-Challenges-for-Automotive-MSMEs.pdf.

Wikipedia

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BibTeX

@techreport{khurana2025navigating, author = {Khurana, Saarthak and Kumar, Manish and Sundaravaradan, Sudharshan and Kumar, Krishna S. and Sethi, Rishabh}, title = {{Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs}}, institution = {Climate Policy Initiative}, year = {2025}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2025/06/Navigating-the-EV-Shift-Opportunities-and-Challenges-for-Automotive-MSMEs.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }