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The global shortage of semiconductors will moderate India’s passenger vehicle (PV) sales to 11-13 per cent this fiscal, which is 4-6 per cent lower than what it could have been without the scarcity, according to a CRISIL Rating analysis of India’s top three PV original equipment makers (OEMs or vehicle makers) with a combined market share of 71 per cent.
Semiconductors, also called chips, facilitate an array of features such as navigation, infotainment and traction control in vehicles. Premium cars with advanced safety and entertainment features need more chips compared with the base models. For OEMs, the shortage has led to production losses, while for customers the waiting period for some models has increased from 2-3 months to 6-9 months.
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The shortage in the auto sector began with the pandemic, as chips were diverted to consumer electronics products. Poor inventory planning by OEMs, chip hoarding by Chinese companies, and natural disasters affecting output at major chip factories exacerbated the problem. The logjams at ports have also affected shipments of chips this fiscal.
Anuj Sethi, Senior Director, CRISIL Ratings said, “Since the pandemic began, preference for personal mobility has increased, leading to more-than-expected demand for PVs. Besides, consumers have also been preferring vehicles with more electronics-driven features or a higher semiconductor quotient. The upshot of the chip shortage has been PV production cuts, which will have a bearing on the ongoing festive season as well, when sales are typically higher. Consequently, we foresee tempered overall growth for PVs this fiscal.”
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The chip shortage is expected to continue well into the first quarter of the next fiscal, with capacity addition not keeping pace with demand, and the need for 12-18 months to set up a greenfield facility. OEMs are diverting chips to high-demand segments such as utility vehicles and premium PVs, which are seeing strong demand. Some OEMs are removing features in certain models to conserve chip usage.
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