Economy

Supply chain shock, a negative for Indian auto component industry: ICRA

Our Bureau Mumbai | Updated on April 03, 2020 Published on April 03, 2020

A file photo of workers at one of the auto component manufacturing facility in Chennai.   -  Bijoy Ghosh

Over 70 per cent of crucial auto component importers and exporters have faced or are likely to face supply chain disruptions due to Covid-19, said credit rating agency ICRA in a report on Friday. The Covid-19 supply chain disruptions will manifest into a demand shock lasting multiple quarters for the domestic industry, it said.

Thirty-five per cent of the respondents said that there were no alternative sources of input material in the event of supply chain disruptions of this nature in China, mostly for electronics, the report stated.

ICRA said it undertook an extensive survey across key auto component importers and exporters to understand the impact of disruptions in the global auto component supply chain because of Covid-19.

Of the respondents who said that there were alternative sources globally, 47 per cent said it needed more than three months, with approvals from OEMs, and would require substantial re-tooling costs and validation time and costs. “While the demand slowdown from Covid-19 has softened commodity prices, 35 per cent of the sample indicated that there were cost increases; the cost of electronic components has increased with supply disruption from China,” it added.

ICRA also expects a significant scale down in exports over the next two quarters.

Even as Germany, USA and Japan are the largest auto component exporters, when it comes to India, China remains the single largest source country accounting for 27 per cent of total auto component imports. The report said. As a continent, Europe accounts for 29 per cent of India’s auto component imports, it added.

“Covid-19, which has so far disrupted the global complex auto-component supply chains and immediate term automotive demand, could manifest into a demand shock lasting multiple quarters for the domestic industry. As for the replacement demand, while the same would witness some pick-up, post the lockout, as system inventories are replenished, export demand for components will witness a sharp correction in FY2021. Large scale OEM plant closures in USA and Europe, apart from a global slowdown, will impact the demand from India,” said Pavethra Ponniah, Vice President and Sector Head, ICRA.

The Chinese Covid-19 epicentre of Hubei is an auto component hub housing seven OEMs, 13 large auto ancillaries and over ten electronic companies. Though China is limping back to a reduced state of normalcy, the global spread of Covid-19 to the USA and Europe has created new disruptions, it said.

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Published on April 03, 2020
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