Semiconductor shortage continues to plague Motown; PV makers soldier on

Passenger vehicle (PV) makers in India are faced with a double whammy as semiconductor shortage continues to play spoilsport vis-a-vis production while OEM’s try their best to meet the rising pent-up demand.

Aug 19, 2021 SHWETA BHANOT MEHROTRA No Comments Like

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There is already a long waiting period on a significant number of new car bookings across brands, running into four-eight months, and the situation is expected to shadow over the festive season as well.  

“The demand for semiconductors has gone up significantly across the world. Especially, there has been a substantial increase in demand from the electronics good industry that is putting pressure on the makers of semiconductors to meet the demand of the world including the automotive industry,” says Puneet Gupta, Associate Director, IHS Markit. He goes on to say that the shortage of semiconductors is expected to continue in the remaining part of the current year and will be felt even next year. 

In a bid to balance out the shortage of semiconductors and the pent-up demand, PV makers have been resorting to price hikes almost every quarter. “Generally, we have seen two yearly price hikes that are undertaken by OEMs, but this year, the price hike is undertaken every quarter,” says Gupta. 

Rajan Amba, Vice-President, Sales, Marketing & Customer Care, Passenger Vehicles Business Unit, Tata Motors, says, “The shortage of semiconductors is impacting the industry all around and is likely to continue for some time, as we progress further into the second half of FY22. The shortage calls for re-modelling of supply chains, adoption of digital solutions and appropriate use of analytics as we navigate through the same and move forward.”

He further says, “We are taking appropriate measures through better planning and close coordination with our suppliers to mitigate the impact on production of vehicles, in turn affecting our customers. We are also looking for innovative alternatives like procuring chipsets from the open market and managing our trim mix with minor changes so that we don’t lose out on sales. We continue to be cautiously optimistic about our growth in the coming months. As markets are opening, the recovery following the second wave has been good. We certainly hope for this trend to continue in the foreseeable period.”

In a separate report, N Chandrasekaran, Chairman, Tata Group, indicated the Group’s plan to manufacture semiconductors in-house at its Hosur plant under Tata Electronics. The plant is expected to start production of semiconductors in the medium term from now. 

Rajesh Jejurikar, Executive Director, Auto & Farm Sectors, M&M, in Q1FY22 earnings call said that the tightening of chip availability has been something that M&M needs to work around. “A lot of that is happening because Malaysia which is the source of semiconductors has got into COVID lockdown in August or latter part of July and in August, September,” said Jejurikar. The company also did not be delay the launch of XUV700 due to the semiconductor crisis. 

“Semi-conductor shortage is playing spoilsport for the industry, constraining overall production volume, though underlying demand remains strong. Industry participants are expecting a loss of over 1 lakh units in Q2 FY2022 due to shortage, which could have a bearing on overall annual production and sales volume,” says Ashish Modani, Vice President & Sector Head - Corporate Sector Ratings, ICRA Limited. 

According to SIAM’s recent report (July 2021), the PV production stood at 3, 33,369 units and domestic sales stood at 2,64,442 units. Exports stood at 52,319 units. The wholesale dispatches of passenger vehicles have grown by a decent 15% MoM and 49% YoY during Jul-2021, in the backdrop of easing lockdown restrictions across key markets and low base effect.

“While industry has witnessed swift recovery post easing of Covid 2.0 restrictions, overall wholesale volume remains below the monthly average of 3.1 lakh units during Q4 FY2021,” explains Modani. 

“Relaxation in southern states has also added to the sales momentum, and the demand continues to remain strong especially in the compact/super-compact car and compact SUV segment. The trajectory of recovery in economic activity and consumer sentiments as well as spatial rainfall distribution remains key factors to be monitored over the next two to three months,” he points out. 

With vehicles incorporating more and more electronics to handle navigation, powerful infotainment and other apps to support autonomous driving, automotive semiconductor integrated circuits have become critical to vehicles what with an autonomous vehicle having as many as 3,000 technology-loaded chips. 

Currently, Taiwan, Malaysia, China and South Korea are key markets for semiconductors, while India, under its ‘Make in India’ initiative is reportedly offering more than USD 1 billion in cash to each semiconductor company that sets up manufacturing base in the country. 






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