The Indian automobile industry will not be impacted by the semiconductor shortage immediately, after leading chip tool manufacturers suspended sales to semiconductor manufacturers in China last week, say experts.

The new US export controls mean that state companies in the US will be restricted from exporting machinery and raw materials to Chinese companies that manufacture chips and semiconductors. These companies will require licences to export high-performance chips. 

With the present spike in domestic demand for automobiles, experts say there will be no problem with semiconductor constraints as original equipment manufacturers (OEM) have stocked a higher inventory of chips. 

“As of now it is not a concern, as global passenger vehicle demand is muted, and India is a small part of the overall global passenger vehicle industry, which has helped us manage the situation better,” said Hemal Thakkar, Director, Consulting-Transport, Logistics and Mobility, CRISIL Market Intelligence and Analytics.

The problem in Q4 

If export controls continue through the next quarter with an increase in automobile demand, chip shortage will impact the Indian automobile market in the fourth quarter.

“The geopolitical scenario is to be watched carefully as raw material base and semiconductor manufacturing bases are different, and interlinkages are very high. Any disruption at one end could significantly hamper chip output and hence availability,” added Thakkar. 

China not the only market

OEMs have started sourcing semiconductors from European and South Asian countries and are not banking entirely on China for semiconductors.

“The industry has learned its lesson and knows that China is not a reliable market. The overall situation with semiconductor constraints is getting better, and unless strong restrictions are imposed, there will be no major challenges,” said Manish Raj Singhania, President, Federation of Automobile Dealers Associations (FADA).