Source: The Hindu Business Line, Feb 18, 2021
Mumbai: Just as car makers were heaving a sigh with demand starting to pick up, a global shortage in semiconductors has spelled trouble for them — exerting pressure on production, apart from creating supply constraints and long waiting periods. Experts say that the challenges are likely to continue up until the first quarter of FY22.
An unprecedented surge in demand for electronics and personal computers amid the pandemic has resulted in a shortage of semiconductors, and this is likely to persist for a while as demand continues to remain high. Semiconductors are used in the electronic control units (ECU) of cars, especially premium passenger cars. Indian auto manufacturers import electronics and related systems worth nearly ₹30,000 crore, according to EY India.
“The big concern for the auto industry and Mahindra, and in fact for the world, is the semiconductor shortage. (It is) something that we’re very perplexed with, and something where the end is not clearly known as to when this fall will go away,” Pawan Goenka, MD and CEO of Mahindra & Mahindra, said during a press conference on the company’s Q3 results, on February 5.
This is while the demand for automobiles remains buoyant, with no sign of it slowing down, he had said. The semiconductor shortage is expected to be normalised only by June-July, Rajesh Jejurikar, Executive Director – Automotive & Farm Equipment Sector, M&M, had said then.
All major players in the passenger vehicle industry are witnessing pressure on production volume amid supply constraints due to this shortage, said Ashish Modani, Vice-President, ICRA Limited. Because of inadequate supplies and strong automotive demand, the waiting period has crossed six months for certain models/variants, he added.
Car companies had already undertaken a price hike in January due to the rise in input costs, and a further price hike would remain a key monitorable depending on the supply scenario of semiconductors, said Hetal Gandhi, Director, CRISIL Research.
“We have some impact due to short supply of semiconductor-related parts from this month onwards and therefore production adjustments are being done as much as possible so that we can reduce its impact on our customers and overall business,” said Rajesh Goel, Sr. Vice-President and Director, Honda Cars India Ltd. The company is engaging with its suppliers to take quick countermeasures, he added.
“Some Covid-19 related challenges in the supply chain, including a global shortage of automotive embedded electronics, continue to impact the industry. Tata Motors is taking appropriate measures with all of its affected suppliers to mitigate the impact to production.
These global industry challenges are likely to continue in FY22,” the company’s spokesperson said.
During Tata Motors’ press conference on its Q3 results on January 29, PB Balaji, CFO, Tata Motors, said that up until January, there has been no impact on the company due to the shortage of semiconductors. “Having said that, the risks are real and conversations are happening with all tier-1 and tier-2 suppliers and with the semiconductors industry as well to ensure that supplies continue…From a demand perspective, we are going very fast, and that’s also adding to the pressure that we have. This is something that is being managed on a live basis, and we will ensure that we do our best to minimise the impact.”
“This is a challenge, and you need a hell of a lot of firefighting to get through,” Balaji added.
Based on current conditions, the chip supply situation will remain tense during the first half of the year, according to ŠKODA Auto Volkswagen India Pvt Ltd.
“Demand forecasting and production planning become crucial for OEMs in current time, and the primary focus is on fast selling model/variants/colour to protect market share and maximise profitability,” said Modani.
The current semiconductor shortage will certainly revive with time, however, other similar disruptions may occur again, cautioned Yugesh Aglawe, Partner – Supply Chain, Business Consulting, EY India. “Automobile manufacturers should make use of rapid what-if scenario modelling capabilities that are available in modern day Intelligent digital planning solutions to assess such risks in advance. The ones who do this will mitigate their risks better and win more often in the market.” The extent of impact of the shortage of semiconductors depends on PV OEM’s product portfolio as well as supply chain robustness, noted Gandhi. “In this scenario, the microprocessor chip companies have decided to raise prices of semiconductors, and at the same time, undertake capital expenditure so as to set up capacities – expected to become operational from June-September 2021.”