Threat for auto sector. Amid semi-conductor shortage disruptions, second wave threat looms large on auto sector now

Even as the global shortage of semi-conductors continues to impact vehicle production, rising new Covid-19 cases amidst a second wave threatens to spoil the recovery in many auto segments.

While several OEMs are still facing supply constraints, which delay the delivery of vehicles, there is concern over near term demand due to rising new cases across the country.

“If there is a second wave or if sentiment comes down a little for discretionary purchases like cars, it will have a disproportionate effect on sales, both on the positive and negative side,” Shashank Srivastava, Executive Director-Marketing and Sales, Maruti Suzuki India was quoted as a saying in a report of Motilal Oswal Securities.

Impact on demand

While a complete lockdown like last time is unlikely, there is a concern that increasing cases might disturb mobility and consequently impact the demand for vehicles such as cars and two wheelers.

Also read: As registrations dip in March, FADA fears lockdown hit

“There are clear visible signs of slowdown in the two-wheeler segment at present while PV segment volumes are impacted by supply constraints of key components. Rising Covid-19 cases and fear of the second wave started taking toll on the automobile industry since second half of last month. Next two months are critical in terms of how the Covid-19 situation takes shape and its impact on various sectors of the economy,” said Mitul Shah- Head of Research at Reliance Securities.

Imposing restrictions

Meanwhile, barring a few, most of the states are undertaking calibrated measures in imposing restrictions in order to keep the wheels of the economy moving. “Any lockdown at this point will severely hamper the momentum which is getting built for the auto industry to come out of the woods,” pointed out The Federation of Automobile Dealers Associations (FADA).

While most of the automobile manufacturers are better prepared this time, the continuing semi-conductor shortage causes some hurdles in delivery of vehicles.

Also read: Passenger vehicle retail sales rise 28%, two-wheeler registrations dip 35% in March: FADA

According to FADA, passenger vehicle waiting period continued to hold its ground and remained as high as 7 months, as scarcity of semiconductors remained. Several dealers indicated that they lost more than one-fifth of sales due to supply side constraints.

Supply constraints

“As the world began to deal with Covid-19, various sub-segments within auto sector started to witness a steady increase in demand and the net impact on the semiconductor industry made it hard for them to meet this increasing demand. This shortfall impacted the passenger vehicles segment the most,” said Vinay Raghunath, Partner and Leader, Automotive sector, EY India.

For the near-term growth, the PV industry faces supply constraints, while the second wave threat looms large on the two-wheeler sector in addition to the latest ABS shortage issues for manufacturers. However, tractor sales are expected to stay robust on the back of a strong rural economy, while revival in infrastructure and mining activities may continue to drive sales of commercial vehicles.

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