Russian war dries up chip supplies for auto firms

Mumbai

The prolonging Russia-Ukraine war has taken its toll on availability of semiconductor raw material with the West ramping up production of missile systems that rely heavily on these chips.

Therefore, the global supply of semiconductors has worsened in the last quarter leading to a loss of production for automobile companies, followed by minimal supply visibility in coming months.

As per April production numbers, Maruti Suzuki and Suzuki Motor Gujarat operated at 84 per cent of their installed production capacity. Last year Maruti Suzuki lost 270,000 units due to production-related shortages.

At around 43,000 units, Tata Motors is operating beyond 100 per cent plant utilisation as per its installed capacity of 480,000 units per annum. The company adds that it can increase production by another 20-25 per cent through debottlenecking and easing the supply chains.

As of April end, Bajaj Auto, the country’s second-largest two-wheeler maker, saw a plant utilisation fall to under 60 per cent. Its March quarter production was 10-15 percent lower than planned due to supply chain bottlenecks. 

The US and European countries are ramping up production of critical defence systems after supplying such weapons to Ukraine. While such chips are much more advanced than other chips powering laptops and cars, an increase in their production is putting pressure on raw materials overall. These chips rely heavily on gas and rare metals supplied by Ukraine and Russia.  

Sanjay Gupta, Vice President, and India Managing Director, NXP Semiconductors, said, “Every country is trying to protect its borders. It is natural to assume that if they increase the expenditure on defence and today, like automobiles, defence is dependent on semiconductors, in general semiconductor demand will go up. The defence sector chips must be very high grade and sophisticated and confidential projects.”

NXP is one of the world’s largest semiconductor manufacturers and claims to have a market leader position in the Indian market.

Shailesh Chandra, Managing Director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, said, “We try to gain as much visibility as possible by directly interacting with Tier 2 suppliers but many a times the dynamics which are going on, the entire auto industry remains distanced from that. It is very clear that there is definitely some impact of the geopolitical situation globally. We are depending on Russia and Ukraine for neon gas and certain precious metals. We are seeing greater uncertainty on semiconductors in this quarter compared to last quarter.”

Material supplies hit

Material supply chain advisory services firm Techcet said that Ukraine supplies more than 90 per cent of the US’s semiconductor-grade neon gas while Russia supplies 35 per cent of the US’s palladium, a rare metal used for semiconductor production.

Besides an increase in chip prices, the waiting period has also shot up significantly in the past few weeks. For instance, the Bengaluru-based electronic parts maker Pricol has seen the overall prices of chips go up by 25 per cent in three months.

“The lead times have gone up as high as 52-54 weeks. We are losing sales. The escalation in chip prices has been pretty sharp, going up by 25 percent, including logistics costs, in the last quarter itself,” Siddharth Manoharan, Director and Head of Strategy, Pricol.  

Besides placing orders for chips with suppliers, automobile companies have been searching for alternatives, including purchasing chips from open markets at higher rates, reducing the number of chips used per vehicle, and offering smarter solutions for features offered. Yet, auto companies are struggling to avoid production losses.

Bajaj Auto, for instance, is predicting a shortfall of 15-20 per cent in production in Q1-FY23 on account of the shortage of chips. Car market leader Maruti Suzuki said its production would continue to remain affected in the current quarter.  

COMMENT NOW