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How diversification unlocks revenue for India’s automotive sector
Listen to our latest podcast on how India’s automotive and auto component companies can diversify into electrification, services and digital to unlock new revenue pools and build resilience.
In this episode of EY India Insights, Som Kapoor, Leader, Automotive, Future of Mobility and Partner, Consulting, EY India, explores how automotive and auto component companies can diversify beyond traditional models and tap emerging opportunities across mobility ecosystems. Som highlights insights from the EY report, ‘Strategic diversification: Unlocking new revenue pools for auto component manufacturers in India,’ including growth directions (electrification, services, software and digital) and how leaders can design a roadmap that balances opportunity with risk.
The conversation unpacks why diversified firms tend to be more resilient and profitable, the five lenses for diversification and the operating, governance and cultural enablers needed to scale. Som also breaks down execution choices such as partnerships, acquisitions and talent redeployment and explains how Indian suppliers can evolve from component makers to integrated system and solution partners.
Key takeaways
Diversified auto firms often achieve stronger margins, reduced volatility and greater resilience during industry disruptions.
In many cases, diversification grows through capability expansion and multi‑powertrain focus, while stabilizing via geography and customer mix.
Clear capital allocation and coordinated functions enable effective scaling while preventing organizational silos.
Partnerships, acquisitions and talent redeployment can support faster growth and stronger cultural alignment in diversification.
Multi‑domain capabilities allow suppliers to deliver integrated solutions preferred by major global OEMs.
Approach diversification with a test, learn and scale mindset. Pilot new capabilities before committing significant capital and when you are ready to scale, choose the right path, a joint venture, technical collaboration or a small acquisition, to effectively de‑risk early entry.
Som Kapoor
Leader, Automotive, Future of Mobility and Partner, Consulting, EY India
For your convenience, full text transcript of this podcast is available below.
Pallavi
Welcome to EY India Insights — the podcast exploring ideas shaping India’s business landscape. I am your host, Pallavi. Today, we are diving into how automotive companies can diversify and unlock new revenue opportunities. Joining us is Som Kapoor, Leader, Automotive, Future of Mobility and Partner, Consulting, at EY India. With over two decades of industry experience, Som shares practical perspectives on expanding beyond traditional models and tapping into new mobility ecosystems.
In this episode, we discuss why diversification is essential for the emerging revenue streams in mobility, electrification, services and digital and the strategic roadmap needed to capture these opportunities — along with the risks leaders must navigate. So, let us dive in. A very warm welcome to you, Som. It is great to have you here.
Som Kapoor
Thank you, Pallavi. Good afternoon. Hi everybody, to whoever gets an opportunity to hear us on this podcast. This podcast is special to me because it is one of the first podcasts I am doing. Beyond that, it is also part of the thought leadership we have come out with some time back. If you want details of what is available at EY, I am happy to get in touch and share the thought leadership with you, which will give you a lot more of what we have after this podcast.
Pallavi
Thank you, Som. To begin with, India's auto component industry has seen diversified players outperform specialists in recent years. What are the key factors driving this trend and how is diversification reshaping competitiveness in this sector?
Som Kapoor
Essentially, for some companies outperforming means higher growth, for some, it means higher profitability, for others, especially those in a cyclical market like automotive, outperforming could mean greater stability; fewer trash, fewer crash, fewer troughs; and more resilient earnings for some companies. Diversification is not just about one particular metric that you can manage.
Diversification enables different kinds of performance. Some people do it for growth, some do it for stability. It depends on the dimension that is required. Interestingly, during our research, we figured out that all the firms that were diversified, they all showed a higher net profit margin. So, 6% net profit margin for the diversified versus 5.5% for the specialist firms. Another interesting fact that actually came out was, all the diversified firms show lower volatility in ROCE: diversified firms were at 0.56% versus specialist firms, which were at 0.73%. Both from a ROCE perspective and from a net profit margin perspective, we saw diversified firms doing better.
One other interesting fact we noticed was, if you go back to the Covid-19 period, the specialist firms saw a very sharp decline in profitability. It was nearly double: 1% decline in profitability for diversified firms versus 2% for firms that were in a particular business product.
If you look at ROCE, it was 6% for diversified versus 10% drop for non-diversified firms. Both from a ROCE and net profit margins perspective, we figured out that diversified firms tend to do better. Interestingly, from the perspective of scale and size, we wanted to see the impact of that.
If you look at large specialist firms, they have a slightly weaker performance compared to large, diversified peers. Diversification with scale leads to benefits. Some key reasons why diversified firms are probably doing slightly better: In technology transition, they have been getting into EV, NEV, single-powertrain versus multiple powertrains, they can reallocate capabilities to new platforms.
They manage geopolitical and supply chain fragility slightly better. We are living in a world of tariffs and rare earth supply restrictions, etc. All of that helps diversified firms rather than specialist firms. Diversification reduces exposure to a single market or single material. An OEM also wants to work with integrated, multi- domain solution providers rather than specialist firms; that helps diversified firms. Customer concentration risk — diversified firms tap multiple customer segments and channels. They reduce vulnerability compared to specialist firms. All of that, put together, helps diversified firms more than specialist firms.
Pallavi
Moving on to the next question. What forms of diversification are proving the most effective today, such as capability expansion, entry into new mobility platforms like EVs and hybrids, global market presence or moving into new adjacent industries?
Som Kapoor
Again, when we were thinking about this whole concept of diversification, we saw that most people tend to do diversification for two primary objectives: Does it help us in growth or does it help us in the stability of business?
We realized that capability and powertrain were the two areas which are going to help people in growth, capability from a variety of technical competencies, powertrain because we are living in a multi powertrain world. I, CNG, EV, VB, hydrogen in the future, etc. These two will help people in growth, pure play from a growth perspective. Stability was the other lens that we looked towards for diversification. There were three elements that we thought came out of stability: Geography, the more you reduce dependency on any one country or region, we are living in the tariff world.
So, geography, industry, applying competencies outside of automotive, if you can work with industries adjacent to automotive, it actually helps. And the customer/ channel was adding multiple customers, a channel that helps in stability. So just to recap that, growth came from capability and powertrain and stability came in from geography, industry, customer/ channel.
That is the lens we applied towards diversification. Let me just qualify one thing, they are not mutually exclusive. Most companies will use a combination. It is the way we look at five kinds of diversification, but they are not mutually exclusive and it is not a MECE (Mutually Exclusive, Collectively Exhaustive). Most companies will apply more than one lens when they are looking at diversification. Let me give you an example: growth-oriented diversification, when I talk about capability diversification, it is revenue growth across all dimensions. You get into EV components, electronics, software, if that works for you. When you look at powertrain, it will become very important. Can you do ICE versus hybrid versus NEV to spread your volume risk? These are the kind of things that will help growth. From a stability perspective, geographical diversification is very important. Demand cycles are different and tariffs and regulatory shifts matter. Geographical diversification for a country like India is extremely important because we have not really looked beyond our traditional one or two or three big countries that we export to for most of the companies.
We need to figure out what are the new set of companies, where we can go and diversify. I also spoke about industry diversification, competencies outside of automotive — what are we doing towards rail, defense, construction equipment and tractors? It is more about stability than breakout growth, but the minute you diversify into defense, just as an example, something which is of interest to India.
Finally, customer channel diversification, how can you reduce your overreliance on one or two OEMs? Can you have lower revenue variation? It helps with the predictability of business. All of that put together, if you can work towards a channel diversification plan for yourself, you will tend to do better. Those were a few lenses that we applied to when we thought of diversification for automotive competently, or as an automotive company in India.
Pallavi
Adding on to that about the diversification. As companies diversify, what are the main operational, governance, or cultural challenges they face and how can leadership build the right structures to manage this complexity effectively?
Som Kapoor
About the three challenges — operational, governance and cultural, there are two or three big things that come across. One is coordination across engineering, sourcing, manufacturing and sales, because you have new businesses coming up, especially while managing different product lines, platforms and geographies. Those are the kind of challenges I can foresee when you look at operational challenges. You could probably end up having different digital systems, CRM and ERP, which come from different businesses. You will be adding more SKUs to your business, new testing cycles and supplier ecosystems. Those are typically the kind of operational challenges that you will end up facing. Governance is all about capital allocation.
If there is going to be ambiguity in capital allocation between core and new businesses, you will always have challenges in governance. The second big governance challenge I have seen when it comes down to companies which have diversified is how they expand their leadership and especially the mid-management teams, to keep track of diversification initiatives.
What is happening is that a lot of these diversification initiatives tend to become siloed projects instead of integrated strategies. How do you make sure that they are not siloed projects, but part of your integrated business strategy? Those are the three aspects of governance. For cultural, it is all about legacy teams versus new teams that require more professional bandwidth.
How do you integrate new capabilities with legacy teams? That is what comes to my mind every time we talk about diversification. The other thing is, sometimes you are going to be challenged with entrepreneurial energy in some units, whereas some of the old mature units will be old style businesses. How do you manage entrepreneurial energy with those mature units? That is something that comes to my mind from a cultural perspective.
One of the other elements, when you diversify and you move to a system or a solution mindset rather than a single component player is: How do you think differently to say, I am not just a competent player, but I am providing a system or a solution to the market? How do you deal with OEMs with that thought in your mind? The way to solve this is cross-disciplinary collaboration, you need to have unified company culture, even if you have diversified into different businesses. How do you figure out that a unified company culture is the single most important thing to my mind when it comes down to diversification?
You need to treat diversification as a test-learn-scale approach. You pilot your new capabilities before committing large capex so that you have tested them to a great extent. To scale, you decide whether you want to use a joint venture, a technical collaboration or a small acquisition to de-risk early entry.
Which of those three works for you the most? That is something that I have learned with companies that have successfully diversified over the last years. We have helped quite a few companies to diversify. I think this test, learn and scale approach that we have built has really helped companies over a period of time.
Pallavi
Thank you, Som. How do partnerships, acquisitions and talent redeployment play a role in accelerating successful diversification and technology transformation journey?
Som Kapoor
Partnerships will give access to new technologies that would take years to build internally. That is the key element of why somebody would want to get into a partnership. Tech collaborations can help companies validate an industry. Before you decide to invest at scale, test before you scale, so partnerships can help you do that. Acquisition, on the other end, is critical where speed to market matters. Lots of businesses are built on who has the first-time-right approach. An acquisition from that perspective is absolutely great. It will accelerate capability expansion anywhere speed to market is critical. You acquire readymade talent; you get intellectual property along with it and you get the certification frameworks along with it. An acquisition will help you do all of that.
When you look at talent redeployment, maintaining cultural continuity and process discipline across all the new capabilities is important because it comes down to a simple fact that businesses are run by people. If you do not have the right set of people maintaining the legacy that you have built over such a long period of time, just to acquire and get into a new score of business, you do not want to be in a position wherein your old legacy businesses start to take the impact of that. That is happening quite significantly in some of the places where we have seen diversification has not worked. If you were to ask me give me one reason why some of these diversification policies have not worked, it is not just cultural continuity and discipline but the new capabilities did not fit in with the with the old business. These are some examples that come to my mind.
When you say how partnerships, acquisitions, talent redeployment play a role in successfully diversifying, those three are probably the three or four critical things you need to focus on from a business deployment perspective.
Pallavi
Thank you, Som. For component manufacturers still heavily specialized, what initial steps would you recommend starting diversifying, while at the same time, safeguarding their own strengths and profitability?
Som Kapoor
I wish I could give you an answer that would fit all, but unfortunately, I do not have that answer. The diversification thought process does not fit all; it has to be uniquely tailored to a firm’s situation. It depends on every player, their financial strength to get on to the table, the customer concentration and the exposure to technology. What is your dependence on one powertrain to that extent? What is market geography risk? What is the firm wide ambition? Who are you doing this for? It depends on these five things. What are you diversifying for? Are you diversifying for growth or are you diversifying for hedging risk? These are the kind of dimensions; you would end up making a two by two and then come up to say that I am diversifying for growth. You need to look at capability, powertrain, etc., and start with that thought process.
The one thing that I have learned in my limited experience of diversifying with a bunch of companies is that you need to figure out your boundary conditions. Is my boundary condition top-line growth of 20%? What is it that I can take it up to do? Do I want to break even in three years or five years? What is the capex I am willing to go ahead with? Once you have these boundary conditions clearly identified, that is when you should think about whether, with these boundary conditions, you are looking at growth or stability? If I am looking at growth, what is the financial strength I have? What is the customer concentration I have? These are the kind of lenses that you would look at putting out for a successful set of diversified activities. Build your boundary conditions upfront before you start this business.
Pallavi
Lastly, looking ahead, how do you see Indian auto component players evolving from being traditional suppliers to becoming an integrated system or solution partners in the global mobility ecosystem?
Som Kapoor
Diversification is not rare; it is a lot more common today. Lots of Indian suppliers are diversifying using the lens of capability, powertrain and geography. To give it a little bit of national fervor, I would say, it is our time in the sun. For the Indian component industry to become globally challenging, diversification is one of the thoughts that needs to be spread far and wide. Diversification has already started to happen. We are seeing bunch of Indian component players trying to become system-solution role providers. We are seeing people getting into technology transitions like EVs, hybrids, electronics and thermal systems. They are not standalone parts. These people are starting to build integrated solutions. Capability diversification — mechanical plus electronic embedded systems — all of that put together naturally moves toward system integration. We are already seeing some of that.
From an original equipment manufacturers’ (OEM) perspective, an OEM would prefer to work with fewer suppliers who can handle multi-domain, multi-platform competencies because it helps them in their buying process. Diversified suppliers fit this model. They deliver broader subsystems and they collaborate earlier in the design cycles. An OEM appreciates this because in this scenario, people will help them to collaborate earlier in their design cycle, which an OEM already appreciates. Capability diversification as a foundation is coming out quite effectively because you start using global platforms. This is a key requirement for becoming a solutions partner. Capability diversification is becoming a good foundation for some of the Indian OEMs. You are getting new customers, aftermarket, D2C channels, they are becoming new customers for them. You know rather than being just a product supplier, you are becoming a service-enabled solution provider.
We are seeing all of this happen, people diversifying only to get into a new customer channel perspective. Mobility ecosystem becoming platform-led , you could probably figure out that there are lots of adjacent technologies and they will form the backbone for some of these integrated digital ecosystem. We are seeing some of the Indian OEMs going down that way.
But before I close this, for companies who want to diversify, they need to do four things: they need to manage their diversification intentionally. It should be capability-led and not just opportunistic, which was the case till maybe a few years back. They need to invest in cross-functional talent, governance systems, build digital and software link capabilities, leverage collaboration and acquisition, internal talent redeployment, to scale these new verticals so that they can keep the whole cultural angle in place. These would be my last few words where I believe a lot of these companies are moving towards diversification and kudos to some of the companies that have done it very well.
I look forward to a lot more Indian companies scaling through diversification to make sure that we get our fair share in the sun, for the Indian automotive industry going forward. Pallavi, these would be few thoughts I had on diversification for the Indian auto sector.
Pallavi
Thank you. That brings us to the end of this episode. It was a great conversation. Thank you so much for sharing your insights, strategic thinking and real world experience with us and with our listeners today.
Som Kapoor
Thank you, Pallavi. It was nice to be here.
Pallavi
Thank you to all our listeners, if you are in the automotive or mobility space, I hope this conversation gives you fresh ideas to explore and inspires you to start your own path into new revenue horizons. If you enjoyed this episode of EY India Insights, please subscribe and share it with your network. Stay connected with us. Until next time, this is Pallavi signing off.
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