Electronics makers turn to cheaper materials and localisation as commodity costs bite
Electronics producers are adapting to rising costs by innovating their material choices and enhancing local manufacturing efforts. In place of copper, aluminum is now favored in products like refrigerators and air conditioners. As input costs clim...
Kolkata: Electronics makers are turning to material substitution and deeper localisation to protect margins after implementing multiple price increases over the past few months to offset the sharp rise in commodity costs triggered by the West Asia crisis and the artificial intelligence (AI) infrastructure boom.
Copper, for instance, is increasingly being replaced with aluminium in entry-level air-conditioners, refrigerators and even fans. Companies are also accelerating localisation of imported materials and components. LG Electronics India, for example, has localised a major resin used in plastic-moulded components that it fully imported till March.
Swap copper with aluminium and steel, avoid component imports to soften the blow dealt by surge in commodity prices"The industry used to operate on double-digit margins, which have now crashed to single digits because of the sharp increase in input prices. We are unable to pass on the entire cost increase to consumers," said B Thiagarajan, managing director, Blue Star.
Copper prices have "gone through the roof", with supplies also becoming uncertain due to advance bookings by companies supplying AI data centres and electric vehicles. "Capacities are getting booked several months in advance," he said.
Copper is used extensively in almost all appliances, such as in motor windings, condenser coils, compressors, connecting pipes, wires, transformers and induction coils. It is being substituted with aluminium, steel, alloys, or product redesigns, which can lead to savings of 2-6% of a product's final manufacturing cost, according to industry executives.
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The adverse impact of inflation and operational disruptions is increasingly evident across companies. Contract manufacturer PG Electroplast estimates that producing 500,000 ACs, which cost around ₹700 crore last year, would now require about ₹940 crore.
LG Electronics India chief manufacturing officer Gaganjeet Singh said the company is monitoring raw material and component prices daily and weekly, and switching between local and imported sourcing depending on prices.
"We are also carrying out value engineering activities, continuously optimising product design and material usage. This reduces cost per unit without compromising on quality," Singh told analysts recently.
Value engineering in electronics means substituting expensive materials with cheaper equivalents, reducing material usage and redesign to reduce production cost.
Electronics companies have raised prices of air-conditioners, refrigerators and washing machines by 10-12% in three rounds since the beginning of 2026 while absorbing another 7-10% to protect demand. Memory-intensive products such as smartphones, laptops and televisions have seen sharper increases of 20-40%, in some cases every one to two months.
Memory prices have surged two-three times on strong AI data centre demand, while copper is up around 45% year-on-year and 17-18% over six months. Higher freight costs following the US-Israel war on Iran, which erupted on February 28, and rupee depreciation have added to input inflation. The domestic electronics industry imports around 30-40% of its inputs.
The business head of a leading electronics company said it has started replacing copper with aluminium in motors used in fans and other products to contain costs.
PG Electroplast managing director (finance) Vishal Gupta said the company plans to start local AC compressor production by December-January and add another line with capacity for two million units.
