ZF Group expects its sourcing from India to grow by 10-15 per cent annually over the next three to four years, as Indian suppliers offer lower costs without compromising on quality, Andreas Moser, member of the board of management at the German automotive components and industrial technology maker, told Business Standard in an interview.
ZF's sourcing from India has increased by around 20 per cent over the past three years. Moser said buying materials and components from Indian suppliers offers a cost advantage of around 20 per cent even after accounting for shipping expenses. The company sources everything from steel and metal castings to fully machined components and complete units for its overseas operations.
“Year by year, we will have a growth rate of around 10–15 per cent when it comes to sourcing,” Moser said, responding to a question about the outlook for sourcing from India over the next three to four years.
Moser estimated current annual sourcing from India at around 600 million euros for the commercial vehicle business, 500-600 million euros for the passenger vehicle business and 150 million euros for industrial technology. These figures represent the annual value of materials and components sourced from India for ZF’s overseas businesses.
ZF wants India to play a larger role in its global operations rather than remain primarily a source of relatively inexpensive materials, manufacturing and engineering services. Moser said the company's Indian teams should increasingly determine the technologies and products needed for local customers, with the global organisation supporting their development.
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“For the time being our business in India is on a ZF level, it's around 1.2 billion euros, we have 20,000 people here, we have 17 production locations here, we have thousands of engineers here,” he said.
The company is also developing products specifically for Indian customers instead of simply adapting existing European products. Moser said products designed for European markets can be too expensive for Indian buyers, making it necessary to develop alternatives around local requirements.
He gave the example of a transfer case, a component used in certain four-wheel-drive vehicles to distribute power between the front and rear wheels. Such a product costs around 3,000 euros when developed to meet European requirements, while the acceptable price level in India is approximately 1,500 euros.
“You can't manage to bring the cost of an existing product down. You have to develop a new product based on the technical requirements of the local market, develop it here, and source it here,” Moser said.
ZF is working on products including transmissions for agricultural machinery and axles and transmissions for construction equipment. Its industrial technology business in India generates around 300-400 million euros in annual revenue, excluding wind power, and is expected to grow by 5-10 per cent annually over the next few years, Moser said.
Coimbatore plant drives global wind power business
India also plays a major role in ZF's global wind power business, which generates around one billion euros in annual revenue. Moser said the company's Coimbatore plant accounts for around 60 per cent of its global production of wind turbine transmissions, which transfer power generated by a turbine's rotor to its generator.
The plant was producing at a capacity level of 12 gigawatts (GW), with a further investment planned to raise it to 14 GW, he said. Around 75 per cent of production is supplied to international markets.
ZF expects its global wind power business to grow by around 6-7 per cent annually in revenue terms. Moser said the industry could not sustainably maintain the 10-20 per cent annual growth rates once anticipated, as developing and commissioning new wind farms takes time.
AI data centres push up electronics costs
Alongside its growth plans, ZF is facing rising costs and shortages of electronic components. Moser said growing demand from artificial intelligence (AI) data centres, which house computers used to develop and run AI systems, was intensifying competition for electronics.
“The PCBs, for example, the prices go up from today to tomorrow by 30%. And this is caused by the data AI centers, which are sourcing, paying every price for electronics, for PCBs,” he said.
Printed circuit boards (PCBs) connect electronic components inside devices, including systems used to control modern vehicles. ZF is also experiencing shortages of semiconductor chips, which process information and control electronic functions.
Passing on higher costs to customers is difficult because some contracts were negotiated three to five years ago. Moser said the company was looking for alternative suppliers and materials while negotiating price increases with customers.
Longer shipping times are another constraint. Moser said sea freight transit time from India to Europe had increased from around six weeks to eight weeks since the conflict he was discussing began. Longer transit times tie up working capital in goods in transit and make it harder for manufacturers to respond quickly to changes in demand.
ZF therefore continues to source from multiple countries rather than depend entirely on one market, even as it increases purchases from India.