How a climate-proofed MSME sector can drive Tamil Nadu’s EV leadership Premium

Climate-related extreme events such as heatwaves and floods are already impacting life, livelihoods and productivity in India; With a thriving MSME sector, Tamil Nadu can demonstrate how becoming a global EV manufacturing hub can be achieved while ensuring a just and inclusive transition

Tamil Nadu is gearing up to be a global electric vehicle (EV) manufacturing hub, with the government seeking to attract ₹50,000 crore in investments and envisioning 1.5 lakh new jobs in the EV sector in the next five years. Investments worth almost ₹40,000 crore is already underway, and as per recent data, Tamil Nadu is one of the largest EV manufacturing states in India, producing more than 40% of all registered EVs and 46% of electric two-wheelers.

Yet, Micro, Small, and Medium Enterprises (MSMEs) hold the key to unlocking the potential of these investments and future growth.

Contributing significantly to the State’s as well as the country’s GDP, MSMEs are financially vulnerable, dependent on fossil-based energy, and in need of significant technological upgradation and efficiency improvements. Tamil Nadu manufactures 35% of India’s automotive components - a sector that is largely driven by MSMEs and contributes to 8% of the State’s GDP. Not only does this make MSMEs the backbone of the State’s economy but also crucial in the growth of Tamil Nadu’s emerging EV industry.

Most EV components are currently imported but the EV component market is projected to grow at a CAGR of 22% until the end of the decade. This presents MSMEs with a huge opportunity as EV manufacturers are keen to localise their component base to bring greater flexibility, customisation and quality control while reducing costs, import dependence, and potential supply chain disruptions (as experienced during Covid). It also means significant new investments and manufacturing capabilities can be built in newer components such as motors and controllers, battery management systems, chargers and charging stations, amongst others. From the State’s perspective, EV-ready MSMEs have the potential to create new and greener jobs, especially for women in a sector that has traditionally been male dominated. 

However, a transition to EVs will also need to ensure that existing Internal Combustion Engine (ICE) component manufacturers, especially those at the risk of losing business as certain components become obsolete, are able to diversify to EV component manufacturing or allied sectors.

Therefore, building MSME capabilities and sustenance needs to be in sync with the investments being made by auto companies to support Tamil Nadu’s transformation to a global EV manufacturing hub.

Building future-ready MSME’s would require skilling and upskilling: as traditional ICE component manufacturers transition to EVs, a significant share of MSMEs and their workforce could be at risk of losing business and livelihoods. To ensure a just transition, such businesses will need awareness on evolving market trends and opportunities in EV component manufacturing. Additionally, they will need hand-holding and support with go-to-market strategies, innovative and hands-on skilling programs catering to existing workforce - both white and blue collar, and incentives to undertake skilling of workers.