Info-tech

Semiconductor short-supply may prove a speed-bump for auto industry

Nandana James Mumbai | Updated on December 11, 2020

The electronic content in vehicles has been progressively increasing; the current scarcity precipitates the need for localisation in auto electronics   -  Getty Images/iStockphoto

The automobile industry is bracing for an impact on its production and sales owing to the supply shortage of semiconductors.

Bosch India, one of the largest suppliers of semiconductors in India, said in a regulatory filing on December 8 that its imports have been impacted with severe supply shortage of imported microprocessors or semiconductors, leading to reduced ability to deliver to the automotive market in India.

A spokesperson for Tata Motors told BusinessLine that it sees an impact in some applications in its commercial vehicles business. “Going forward, we are working with our supply chain partners to mitigate further impact and support market demand,” the spokesperson added.

In a regulatory filing on December 9, Mahindra & Mahindra said that it is expecting a drop in production and sales volume in its automotive division and subsidiary Mahindra Vehicle Manufacturers Ltd in the last quarter of this fiscal year due to the global supply shortage of microprocessors or semiconductors. It is assessing steps to be taken to minimise the impact of the same, it added.

Resonating effect

Deepak Jain, President of auto component makers’ body Automotive Component Manufacturers Association of India (ACMA), said in a statement on Friday that while it is still not clear as to what extent and for how long the shortage of semiconductors will impact vehicle production in India, “any stoppage of vehicle lines has a resonating effect on the entire auto component manufacturing ecosystem”.

“The electronic content in vehicles has been progressively increasing and incidents such as these only precipitate the need for localisation and self-reliance in auto electronics in the country,” added Jain.

Meanwhile, a spokesperson at Skoda Auto-Volkswagen India struck a contrarian note in the company’s statement: “Our production planning allows us to be flexible and react quickly to the market. As the shortage of semiconductors is expected to be addressed within the next four to six months, we are unaffected, (having) adequate stocks to last the restoration of supplies.”

Usually there is an inventory of parts maintained at the suppliers’ end to meet some days or weeks of production, but carmakers’ production is usually done on the principle of Just In Time (JIT), wherein the inventory carriage is minimal, said Suraj Ghosh, Principal Analyst - Powertrain Forecasts, IHS Markit.

If the shortage prolongs, there could be some impact on the overall production and sales of vehicles, he added.

Price hike

“Automotive production in India is currently not impacted but could get impacted in the upcoming quarters if microprocessor supply remains constrained.

The microprocessor chip companies have decided to increase prices of these materials and undertake further capital expenditure, which is expected to be available from June-September 2021,” said Hetal Gandhi, Director, Crisil Research.

This raises the question of what steps companies can take to minimise the impact of the same.

“Since Bosch is one of the largest suppliers in India and most OEMs source components from it, there’s a possibility that OEMs with Bosch as their single source will have to revise their production schedules till the situation stabilises,” said Ghosh.

However, if the crunch is at the tier-2/3 supply level, then an OEM can do only so much after a point, he pointed out.

“Meanwhile, if the situation prolongs for a longer period, the dealer inventories will start running out and even sales will get hit. So, in a way, this could well become an unlikely speed bump for the auto industry,” added Ghosh.

Published on December 11, 2020

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