At least three Indian component makers — Sandhar Technologies, Bharat Forge, and Sona BLW — have been supplying auto parts to Tesla, the American electric car maker that is often seen as the company that will reinvent the future of mobility.

“It is fascinating to know that some of the parts that go into the Tesla cars, assembled by hi-tech robots and cutting-edge technology, are made by Indian companies,” said one of the sources.

For Indian component makers, being one of the suppliers to Tesla opens up doors for new business in the fast-growing electric vehicles market expected to more than triple to $350.9 billion by 2023.

A Tesla car has fewer parts compared to any of the vehicles made by Ford or General Motors, which means the company has lesser component suppliers compared to the incumbents. Tesla sources components from hundreds of suppliers in US, Europe and Asia. The Model S, for instance, sources over 2000 parts from 300 suppliers.

What really matters is quality, said the second source. “India has a good reputation with manufacturing hi-tech products that require precision… Quality matters for a company like Tesla,” he added.

To be sure, the rise of electric vehicles threatens to disrupt traditional component makers as these vehicles require fewer parts. Take for instance how Tesla’s new electric truck affects component maker Bharat Forge. The truck, which will likely go into production by 2019, doesn’t need a crankshaft that transmits power out of the engine. As this Economic Times report points out, if the global truck industry moves towards electric trucks, Bharat Forge, which gets nearly 44% of its revenues from selling truck components (of which half is from selling crankshafts), will see its business shrink.

Low Hanging Fruit

Sandhar Technologies makes two kinds of components, including wiper systems, for Tesla cars, said a third source. He added that Sandhar might not be selling directly to Tesla, but to a tier-I supplier of Tesla, who makes the entire wiper system for the vehicles.

“It’s been more than a year Sandhar has been selling for Tesla cars… It is just a matter of time that Tesla and other EV makers start looking at India as a sourcing destination for hi-tech products as well,” said the third source.

Bharat Forge has been selling some forging parts to Tesla, which are not part of the electric powertrain, the first source said. These products are not exclusive for EVs or Tesla, but for every product, it needs to pass Tesla’s design and quality benchmark. A forged auto part is something that is usually made by using plastic dies.

Sona BLW also supplies forged parts that go into making suspension systems for Tesla. The parts are not very different from what goes into an IC engine car but the suspensions need to be lighter for electric cars, explains the second source. Making the vehicle lighter increases the range of the EV, and that is done by changing the components.

“Even in a car like Tesla, suspension system and under chassis systems use a lot of forging equipment… Suspension systems and body shell are like any other good car… and the business is low volume and high-margin business, which is pretty good,” explains Deepesh Rathore, a London-based analyst of Emerging Markets Automotive Advisors.

One reason why analysts feel India is where Tesla is scouting for component suppliers is the cost. “Apart from China, there is no other country that beats India at prices… It’s largely into the realm of a snowball effect, but it’s not that anyone offering a low price can supply to Tesla. One needs to already supply to GM, Ford,” said Anil Sharma, associate director of MarketsandMarkets, a market research firm.

Sandhar, Sona BLW and Bharat Forge did not offer comments for the story. Tesla, too, did not respond to FactorDaily’s email until the time of publishing.

Global and local Opportunity

The Indian government wants one out of 10 cars sold in the country to be electric by 2030. That not as audacious as its earlier plans have only electric cars in the country by then. The change in plans and the policy flip-flop, however, hasn’t deterred component makers from scouting for global deals.

Over the past one and a half decade, size of India’s automobile industry moved from the sixteenth position to the fourth position in terms of volumes. In 2017-18 for the first time more than four million cars were made in India. That has given rise to a large Rs 3,00,000 crore auto components industry.

Indian component makers already supply to BMW, Mercedes, Audi, among other large brands. Motherson Sumi, India’s largest auto component maker makes the cockpit of the BMW i8 electric vehicle.

But, once a company adds Tesla to a list of clients it adds to the company’s reputation in the market and reputation opens up more business for component makers. “Doesn’t mean much apart from some brownie points, because Tesla sales fewer volumes, but the kind of visibility and boosting power that it offers to any supplier is immense,” said Sharma.

Even if the component makers are not making parts for the electric powertrain of the EV, there is enough opportunity in the market to pursue. “All three are low-end component manufacturers. There would be 80% high-end components and 20% which would be low price,” said Rathore. The powertrain, which includes components like the engine and transmission systems, is the most critical piece in an automobile.

Rathore further explains that China is not the best supplier of quality, and in most of the cases India matches China in pricing. “Companies like Bharat Forge have massive scale and can match China in terms of prices,” he said. Bharat Forge posted revenues of Rs 4,166 crores in 2017. Sandhar Technologies went public in March this year and reported Rs 1,765 crores in the same period. Sona BLW Precision Forgings is a joint venture between Sona Holding and Japanese Mitsubishi Materials Corporation.

For component makers, only 5% of the business would be supplying to companies like Lamborghini or Tesla, according to Rathore. But it is good to have a foot in the door for future. “There is a specific term called ‘0.5 tier supplier,’ which is a level above the tier-I supplier,” said Sharma. “These are the guys involved in vehicle designing along with the OEM. That’s the kind of breed that will play a role in evolving from traditional IC engine to EVs.”

Buying components from Indian component makers will help Tesla meet sourcing norms laid out by the government of India. Tesla would have to source 30% of its components if it starts retailing in India. “That’s difficult right away but can gradually happen in the next couple of years,” said the first source. Most foreign car makers use dealers to sell cars so they don’t attract retail sourcing norms.

The Indian government, however, has said that if Tesla sets up a factory in India, it will not only help procure land but also allow Tesla to sell in retail, wholesale or e-commerce. The 30% local sourcing condition will apply only on trading goods, and not the ones manufactured in India.

Many Indians booked Tesla’s Model 3 last year and Musk had said that he was hoping to launch Tesla’s in India by the summer of 2017. However, that hasn’t come through and Tesla has been talking to the Indian government to relax import duties. Importing a fully built car would attract more than 100% duty, making them expensive for the market.

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