Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs

This technical briefing by the Climate Policy Initiative (CPI) examines the impact of India's transition to electric vehicles (EVs) on micro-, small-, and medium-sized enterprises (MSMEs) within the auto-component manufacturing (ACM) sector. While the shift threatens traditional internal combustion engine (ICE) component markets, it creates opportunities for MSMEs to diversify into high-value EV parts. The report identifies critical barriers—including financing gaps, technical skill shortages, and policy exclusions—and proposes the establishment of an Automotive Component Technology Upgradation Financing Facility (AC-TUFF) to support MSMEs in this transition.

• MSMEs are central to India's auto-component manufacturing (ACM) industry, constituting 80% of the base and contributing nearly 30% of total industry output. The ACM industry reached a turnover of USD 74 billion in FY 2024.
• The transition to EVs poses a severe risk to MSMEs specializing in ICE powertrain components, as approximately 90% of these components could become obsolete. Engine, transmission, and steering components are most exposed, representing 39% of total ACM industry turnover.
• EV adoption in India is projected to grow significantly, with EV sales reaching 10.6 million units by FY 2030 and 24.6 million units by FY 2035, capturing nearly 49% of all new vehicle sales by 2035. The highest penetration is expected in three-wheelers (100%) and two-wheelers (50%) by FY 2035.
• MSMEs have significant opportunities to diversify into non-battery EV components, such as battery housings, motor casings, and precision-machined gears, where localization is currently only 35-40% but is expected to reach 60-75% by FY 2035.
• Five primary challenges hinder MSME participation in the EV shift: market uncertainty (erratic demand and import dependence), limited access to affordable finance (high collateral and interest rates), technical and skill gaps, policy limitations (schemes designed for large firms), and a challenging business environment (difficulty securing new contracts).
• A critical financing gap exists during the prototype development stage (Technology Readiness Level 4–6), described as a "Valley of Death," where MSMEs lack the patient, risk-tolerant capital needed to move from lab validation to market-ready products.
• CPI recommends the creation of the Automotive Component Technology Upgradation Financing Facility (AC-TUFF) to provide concessional and blended-finance solutions, de-risk investments through first-loss guarantees, and provide technical assistance to improve project bankability.

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

{{cite report |last1=Khurana |first1=Saarthak |last2=Kumar |first2=Manish |last3=Sundaravaradan |first3=Sudharshan |last4=Kumar |first4=Krishna S. |last5=Sethi |first5=Rishabh |title=Navigating the EV Shift: Opportunities and Challenges for Automotive MSMEs |publisher=Climate Policy Initiative |date=June 2025 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2025/06/Navigating-the-EV-Shift-Opportunities-and-Challenges-for-Automotive-MSMEs.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

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} }