Semiconductor shortages hit Indian auto industry and customers

Media reports suggest that global auto majors like Ford, Nissan and Toyota among others announced production cuts last month and automakers in India will follow the suit as the country is heavily dependent on imported semiconductors.

Business Desk, ETV Bharat: At a time when Indian automakers have started recovering from an all-time low demand caused by Covid-19 pandemic, semiconductor shortages in the global market starts affecting the recovery prospects for the automobile industry.

“Currently, automobile OEMs have started to witness a steady increase in vehicle demand due to the revival of car sales. However, the semiconductor industry is finding it difficult to address the increasing demand as it also caters to other industries like IT, consumer electronics, mobile and medical equipment,” said a recent report from EY India.

While a whole range of businesses were shut during the pandemic last year, there was a sudden spike in demand for televisions, mobile phones, entertainment systems, laptops, etc as people were forced to stay at home due to extended lockdowns resulting in high demand for semiconductors.

Semiconductors are used in the electronic control units (ECU) of cars, especially premium passenger cars.

Notably, media reports suggest that global auto majors like Ford, Nissan and Toyota among others announced production cuts last month and automakers in India will follow the suit as the country is heavily dependent on imported semiconductors.

As per an estimate, Indian automakers import electronics and related systems worth Rs 30,000 crore per annum.

Long waiting period & fear of price rise

As per industry experts, waiting period for certain models has already crossed six months on the back of supply-side issues and high demand for cars.

Besides, there are also concerns that supply shortages may force automakers to opt for another round of price hike in the coming months.

To recall, all the major automakers, including, Maruti Suzuki, Hyundai, Mahindra and Mahindra and Kia, announced price hikes in last January citing exchange-rate fluctuations and high input and material costs.

Need for intelligent planning solutions

At present, semiconductor manufacturing is a complex global intertwined ecosystem, which has led to a supply chain that is vulnerable to macroeconomics, natural disasters and other factors.

Besides, semiconductor companies operate in several different countries and jurisdictions with country specific and international laws relating to health and environment regulations.

"The current semiconductor shortage will certainly revive with time, however other similar disruptions may occur again. Automobile manufacturers should make use of rapid what-if scenario modelling capabilities to assess such risks in advance," said Yugesh Aglawe, Partner and Supply Chain Leader, EY India.

"The ones who do this will mitigate their risks better and win more often in the market," he added.

PLI Scheme

On being asked how the recently announced Production Linked Incentive (PLI) scheme would help domestic manufactures in facing similar shortages in the future, Vinkesh Gulati, President, Federation of Automobile Dealers Association (FADA) said: “With the PLI, our dependence on imports will decrease a lot. At present, around 25 to 35 per cent of vehicle components are being imported. Once the scheme is fully in place, the industry and the government wants it to come down to 10 per cent.”

Last November, the government had brought the automobile sector under the PLI scheme to boost domestic manufacturing. As per the initial estimates, the government will spend around Rs 57,000 crore over a period of five years on the auto sector under the scheme.

“What we can say is that it will be easy for India to develop and react to the current market situation faster than how we are doing today,” Vinkesh Gulati told ETV Bharat.

(With inputs from agencies)