Prolonged Russia-Ukraine conflict would impact auto industry, say manufacturers

Russia and Ukraine being key producers of elements such as including rohdium, cadmium and neon gas used in semiconductor chip manufacturing, the ongoing conflict between the two countries is causing tremendous anxiety among Indian automobile and component manufacturers who are already hit hard by chip shortage.

A prolonged conflict essentially means more supply constraints and consequent delays in manufacturing of end products. There has already been a worrisome delay in the supply chain of the vehicles because of the ongoing shortages.

“Our supplies depend on how long the conflict continues. If we are in for a prolonged war, it would impact everything. Nobody knows what exactly is going to happen. Already there is a rise (in cost) in everything and input costs are going up again,” Rajeev Chaba, President & Managing Director, MG Motor India, told BusinessLine.

The issue here is that the companies cannot hedge the costs of such components like steel or aluminium as these are now priced on current need basis. For instance, the price of rhodium has been fluctuating over the last one year and based on that, the prices of end products are also changing.

“Last year, we were buying rhodium at $11,000 per ounce, which shot up to $24,000 per ounce and then again it has come down to $16,000 per ounce, and has been stable since then (for last four months) more or less. So, at least we know where it can go up to for now (),” Ashish Gupta, Brand Director, Volkswagen Passenger Cars India, explained.

According to the Society of Indian Automobile Manufacturers (SIAM), the continuing supply side challenges like semiconductor shortages, higher commodity prices and higher logistics cost have impacted the overall industry sales in the industry. The conflict in Ukraine has only added to their troubles as global supply chains are expected to come under stress, Rajesh Menon, Director-General, SIAM, said.

“We definitely see some disturbance in the container/ freight movement as the cost may be impacted, which may finally get translated into selling price of the products,” Naveen Soni, President, Lexus India, said.

Passenger vehicle market leader Maruti Suzuki India added that the company was watching the prices of rhodium and neon gas. “Right now, all we can do is to watch the situation in these countries,” said a company top executive.

On the components industry side, according to Automotive Component Manufacturers Association (ACMA), the industry is expecting the war between the two countries to end at the earliest so that things fall into place again.

“Commodity prices are already high, and there is a huge worry on when the government will hike the fuel prices, which will again have a huge inflationary impact on the overall manufacturing. In return, that will impact the sentiments of consumer for auto consumption...two-wheeler buying sentiments are already down, so it will be adversely impacted if it continues and what we are seeing is that it can worsen the semiconductor issue,” Vinnie Mehta, Director General, ACMA, said.

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