Increased adoption of electric vehicles will adversely impact the domestic forging and casting industry resulting in reduced capacity utilisation as the number of moving parts in such vehicles are minimal compared to traditional ones, according to AIFI.
The Association of Indian Forging Industry (AIFI) on Wednesday said the industry, which is also grappling with rising input prices, might even face the prospect of 60 per cent of the sectoral players shutting down unless the government focuses on encouraging hybrid vehicles rather than just electric ones.
Automobiles accounts for 70-80 per cent of the total domestic forging production demand and amid deceleration in the auto sector, the forging industry has seen an average slowdown of 50 per cent of total capacity, the association said.
“The electric vehicle sector will have a significant impact on the forging industry since the demand for moveable parts used in vehicles will decrease, resulting in considerable unutilized forging capacity.
“We anticipate that EVs will shut 60 per cent of the forging and casting industries in the next few years, resulting in unemployment and unit closures,” AIFI President Vikas Bajaj said.
As per the association, as against 2,000 moving parts in a conventional drivetrain, an electric drivetrain contains only 20.
A recent study by IVCA in collaboration with EY and Indus Law, electric vehicle registrations in India surged 168 per cent year-on-year to around 330k units in 2021. The study forecasts the domestic EV demand to mount to 9-million vehicles by 2027.
“However, the forging industry will need to look into alternative options such as aluminium forging and expand into non-automotive areas such as infrastructure, defense, healthcare, and railways, where the government is also substantially investing,” he added.
According to AIFI, the government may avert this likely situation, if it opts for policies which encourage the use of hybrid vehicles, which are powered by both internal combustion engine (ICE) and electric motor.
Besides, the industry, on its part, will have to explore other options such as aluminium forging and expand to non-automotive sectors, it said.
The first half of the year was the most difficult for most of the forging companies, particularly those in the small and medium segment, which are expected to witness a 50 per cent decline in production in FY23, AIFI said.
Automobile demand in India has been witnessing a gradual improvement in month-on-month sales for the first half CY 2022 for most segments save tractors segment, which degrew 5.34 percent during the period, impacting the industry volumes as it contains more forging components than any other vehicle, AIFI said.
“The industry is still going through challenging circumstances, and the forging sector faces new challenges on a regular basis. The volatility in the prices of steel, which is our core requirement, has damaged the industry.
“Moreover, the present price increase has disrupted the supply chain. Furthermore, high raw material prices remain a challenge, and high fuel prices continue to influence customers and buying decisions,” said Yash Manot, Vice President, AIFI.
Rising input prices and a decrease in vehicle demand could cause capacity utilisation at forging plants to decline from 80-85 per cent pre-pandemic levels to approximately 50-55 per cent, he said.
Munot warned that with demand not picking up, fuel price increases, and a semiconductor shortage, automobile OEMs have little room to pass on additional price increases, and the forging sector anticipates a difficult year ahead.
The forging industry is feeling the heat of increasing production costs, and the post-pandemic recovery may be pushed back, with a revival taking up to at least two years, the Association said.