Coronavirus Reduces India Auto Components
This article first appeared in the March 2020 issue of PowerTALK™ News
China is one of the leading suppliers of auto components to India, and this supply chain was significantly interrupted in Q1 2020 by the caronavirus. In 2018-19, components worth an estimated US$4.5 billion (out of a total of approximately $17 billion) were exported from China to India. Most of this trade is in electronic components, EGR modules, fuel injection pumps, turbochargers, meter sets, LEDs, magnets, airbag components, and steering system components.
Since the discovery of the Coronavirus in December 2019, this supply chain has been affected. The covid-19 pandemic has started taking a toll on components supply and automotive production in India. The situation is further amplified, as China has terminated all sea routes to other parts of the world.
On the positive side, Maruti, Hyundai, and Toyota say production schedules are unaffected so far by the coronavirus outbreak in China. Read The Article
The severity of the impact of the outbreak is different for different segments of the auto industry. Passenger cars and SUVs are expected to suffer a relatively mild impact because of greater localization of the market leading OEMs, Maruti and Hyundai.
However, the key players in the two-wheel segment have taken a beating. The country’s two major players, Hero MotoCorp and TVS motors, reduced their production by about 10% in February. The companies say that even though their direct dependency on China is limited, their production is hampered because of a dip in the production of a few Tier II suppliers. To tackle this problem, TVS Motors is scouting suppliers in other regions and may as well localize within India.
Tata Motors, M&M, MG Motor Hurt by China Shutdown
The impact of the coronavirus outbreak is higher on the commercial vehicle segment than on the auto side. The key players in this segment – Tata Motors and Mahindra and Mahindra are seeing unexpected challenges in their parts supply from China. This problem is expected to hinder their BS6 ramp-up. But the companies claim each passing week is better than the previous one, and if the improvement continues at the current pace, by early April, supplies from China will resume. Read The Article
PSR Analysis: As the coronavirus pandemic continues, it will continue to disrupt the supply chain and will adversely impact customer sales. The Indian auto industry had already maintained an inventory at the beginning of the year in anticipation of the Chinese New Year holiday, so, the virus outbreak is not expected to cause much disruption in the fourth quarter of fiscal 2020.
Still, with the current scenario, the production rate will further slow down. This slump in supply chains will hinder the production of electric vehicles in India, which is mostly dependent on parts imported from China. Auto manufacturers are developing alternative suppliers to meet supply chain demands, but it would take some time to reach a stable production scale when considering the average product development cycle. We anticipate that 1H 2020 will be a tough period for the automobile industry.
Nevertheless, many OEMs and tier 1 suppliers are forced to source more parts locally. This risk-mitigation is expected to boost the local auto components industry and to avoid the adverse impact of overdependence on other countries. PSR
Ritvik Kulkarni is a Research Analyst – India
