Friday, Aug 12, 2022

Russia-Ukraine War May Cost A Bomb To Indian Auto Industry

The worldwide chip shortage is likely to exist well into the last part of 2022, and possibly even 2023, this will further worsen the situation for the auto industry already reeling under pressure

auto sector. auto industry
auto sector. auto industry

The semiconductor chip shortage has already put several industries, especially the auto sector, in a tough spot, and it looks like the issue is unlikely to resolve soon.

The restrictions in the wake of Covid-19 had affected manufacturing and subsequently supply chain, and the ongoing Russia-Ukraine war is set to worsen the situation further as both countries are vital exporters of raw materials used in the manufacturing of various chipsets.

Russia accounts for 45 per cent of the global supply of palladium which is used in many memory and sensor chips.

From a basic calculator to an automatic car, everything requires semiconductors and its scarcity has already raised uncertainty about the future and growth of a lot of companies.

Several auto companies announced production cut a few months back amid glocal chip shortage.

Sales of passenger vehicles remained subdued in January due to supply constraints brought about by a global chip shortage.

As many as 254,287 passenger vehicles were sold in the local market last month, a decline of 8% compared to 276,554 units sold in the year-ago period, As per the industry body Society of Indian Automobile Manufacturers (SIAM).

Two-wheeler sales last month decreased 21% to 1,128,293 units while sales of three-wheelers fell 10% to 24,091 units.

The sales were tepid even during the festive season last year.

Maruti Suzuki India sold just 1.9 lakh cars in November 2021 as against the 1.35 lakh cars it sold in April when the second wave of Covid hit the country. Hyundai sold just 37,001 cars in November last year as against 49,002 cars it sold in April.

The worldwide chip shortage will exist well into the last part of 2022, and possibly even 2023, according to the latest US Commerce Department report.

This will further worsen the situation for the auto industry already reeling under pressure amid high demand and low supply.

India recently cleared a program for the development of the semiconductors and display manufacturing ecosystem. This involves an outlay of over $10 billion and the government has declared incentives for the supply chain including electronic components, sub-assemblies, and finished goods.

Through this, the government to position India as a global hub for electronics manufacturing with semiconductors as the foundational building block.

Shortage of semiconductors led to the closure or lowering of production by several firms from diverse industries, according to the Economic Survey for 2021-22.

The government last week said it has received proposals from five companies to set up electronic chip and display manufacturing plants with an investment of $20.5 billion (Rs 1.53 trillion).

The government is also reported to be in talks with Taiwan to set up a semiconductor manufacturing facility in India.

The US chip-maker Intel has also expressed interest in setting up a semiconductor manufacturing plant in India, which the Indian MeitY minister immediately welcomed.

It's highly likely that it will take some years for India to achieve its semiconductor ambitions, and till then, the road looks bumpy for the automakers.