Longer waiting period to dent auto sector growth

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SME Times News Bureau | 22 Aug, 2021
The global shortage for semiconductors triggered by the Covid pandemic-induced supply hurdles as well as healthy demand is expected to dent the auto sector's growth in FY22.

The phenomenon has been blamed on the exponential rise in demand for personal electronics such as cellphones and laptops during the ongoing pandemic.

On technical basis, semiconductors play a critical part in the production of internal combustion engines. They are an integral part of all kinds of sensors and controls in any vehicle.

Industry insiders fear that the semiconductor shortage will extend waiting periods as well as escalate prices.

These shortages are expected to impact the industry's production levels in the near term.

At present, these shortages have forced several OEMs to slow down production, thus, further extending the waiting periods of popular, feature-rich and high-end models.

"Production schedules of several vehicle manufacturers have been impacted due to the shortage of semiconductors to the Tier 1 and Tier 2 suppliers of OEMs, as some of their key suppliers have expressed their inability to supply these components in required quantity used in 'Vehicle's Engine ECU', 'Keyless' entry and 'ABS' systems," said Rajesh Menon, Director General, SIAM.

"The industry has been in touch with a couple of semiconductor suppliers globally and it is expected that the manufacturing would be ramped up after some disruptions these companies have faced in the later part of 2020 and early 2021. However, it is expected that the demand for semiconductors would continue to rise," he added.

Besides, Menon also cited an immense opportunity in India for the manufacturers of semiconductors.

On its part, Tata Motors has been taking appropriate measures through planning and close coordination with the suppliers to mitigate the impact on production.

"We are constantly striving for better visibility across our multi-tier supply chain to manage lead time sensitivity. We are following a multi-pronged approach like procuring chipsets from the open market, managing our model or trim mix, use of alternative chips etc. to best mitigate the supply side risks," Shailesh Chandra, President (Passenger Vehicles), Tata Motors, said.

"However, apart from chip capacity issues, certain disruptions in other parts of the world, like the recent lockdown in Malaysia, continues to keep the supply environment uncertain," he added.

Another auto major, Hyundai Motors India, is monitoring the situation closely to maintain production continuity.

"We have been consistently coordinating with the HMC team as this shortage is a global issue and not India specific. We are monitoring the situation closely to maintain production continuity," an official spokesperson of Hyundai Motors India told IANS.

According to Sridhar V, Partner, Grant Thornton Bharat LLP, the growth of the auto sector might be hampered due to the shortage.

"This appears to be a problem for a longer term unless new capacities are created or alternate supplies are identified. Certainly, it is an issue which could impact growth in the auto sector," Sridhar said.

The Vice President of ICRA, Ashish Modani, said the impact of the shortages is likely to continue till Q4 of the present calendar year.

"Covid 2.0 related production disruptions masked the real pain of the Indian automobile industry during Q1 of FY2022. With recovery in volume since July 2021, the domestic OEMs have acknowledged the impact of semiconductor shortage.

"The industry participants expect production loss of over 1 lakh units during Q2 FY2022; however, given the spillover of the issue during Q3 FY2022, the overall impact could be even higher for the full year," Modani said.