Indian Automakers Brace For The Worst Of The Chip Shortage

First the Covid-19 lockdown and work from home caused a washout for Indian automakers. Then lack of a key component derailed a nascent recovery. And the worst is not over yet. India’s largest carmaker and one of the biggest auto parts producers are looking to temporarily stall production in August as the shortage of chips, the brains of electronic components, worsened amid mounting coronavirus infections in Malaysia—a key source for their supply. A fire at a semiconductor plant in Japan in March added to the woes. China and Taiwan chipmakers are already stretched amid rising global demand.“Shortages have been there, and we have been managing but now with Covid impact in Malaysia, this shortage has further flared up,” Nirmal K Minda, chairman at Minda Industries Ltd., told BloombergQuint over the phone. “We will be looking to discontinue production. There is no point in building inventory.” The components company is watching for two-three days, Minda said, adding it would take a call depending on how the situation evolves. Maruti Suzuki India Ltd., which makes every second car bought in India, said its contract manufacturer, Suzuki Motor Gujarat, will shut production for three consecutive Saturdays because of semiconductor shortages. Some of the output lines at Suzuki Motor facility may see a temporary reduction from two shifts to one, the Indian carmaker said in a statement. .Why the World Is Short of Computer Chips, and Why It Matters.The shortage of chips began in December last year as sale of laptops and mobile phones to televisions surged with people working remotely during the pandemic. Bosch Ltd., a key supplier of the component to Indian automakers, had said it faced escalated demand from the consumer electronics industry. Lack of semiconductors—crucial for sensors, engine, battery controllers and infotainment units in vehicles—hurt Indian automakers’ ability to keep up with the demand for personal mobility arising from fears of contracting the virus. That has caused longer waiting period for many automobile models. For instance, waiting period for Mahindra's Thar is as long as 10 months.“Till now players have been doing product mix (focusing on vehicles either with high margin or rationing among those that use less chips) and were able to manage the crisis,” Gaurav Vangaal, associate director at IHS Markit, told BloombergQuint. “This is the quarter [July-September] in which players are going to face the most heat due to pent-up demand and they want to ramp up production in the run-up to the festive season.Mahindra & Mahindra Ltd., one of the worst-hit automakers due to the crunch, said semiconductor situation is very dynamic, uncertain and needs to be watched carefully. “Rising commodity prices and semiconductor issue continue to remain a challenge… Large amount of semiconductor production happens in Asian countries and they are currently seeing rise in Covid cases, especially Malaysia, and it is a concern,” Rajesh Jejurikar, executive director at M&M, said during a conference call after the company’s first-quarter results on Aug. 6. M&M expects the constraint to lead to 20-25% impact on volumes compared to demand. “The way we are seeing the demand and the way we are seeing the supply, we think that’s the gap,” Jejurikar said. The company, according to him, is evaluating whether there’s a need for production days off in light of the chip shortage. “We are still seeing what we have in terms of inventory and what is the balancing that needs to be done. We still haven’t reached a conclusion.” Still, he said M&M was well-placed for bold and aggressive growth strategy. Last month, Tata Motors Ltd. had said the crisis was likely to deepen in the second quarter of the ongoing fiscal. “We’re working very strenuously to mitigate the impact,” Chief Financial Officer PB Balaji said. The company, he said, is trying to balance the shortage by reducing consumption where possible, redesigning products and making long-term arrangements with semiconductor suppliers. Vangaal estimates at least 10% of the volumes to be lost in the three months ending September.Vinkesh Gulati, president of the Federation of Automobile Dealers Association of India, however, fears the loss could be higher. “If Maruti [Suzuki] has said it’s going to be a challenge that means the problem is now growing out of hand and the gap will become more.” The sales loss, he said, could be as high as 20%..Watch the video here:

Indian Automakers Brace For The Worst Of The Chip Shortage

The chip shortage worsens for Indian automakers.

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