Semiconductor Shortage Restricts Growth of Indian Auto Industry

As the industry is coming out from the COVID impact, its growth is hurt by a shortage of semiconductors. Many OEMs have revised the production plans downward due to this shortage. We anticipate the shortage of semiconductors will exist for the next 4-5 months. Though it will hamper monthly production, it will have only a moderate impact on the total year’s production. But If the chip shortage lasts, production cuts could reduce the inventory of vehicles for sale in India and overseas markets.

The issue started in the Q2 2020. Due to COVID-19, auto OEMs worldwide drastically reduced their production and component orders. Concurrently, chipmakers were improving the supply chain, which had been disrupted by COVID-19. They witnessed a spurt in orders from electronics companies for items such as phones, laptops, gaming console makers and witnessed a spike in sales volume during the pandemic caused by changing work and school patterns.

“The shortage is largely the result of substantial swings in demand due to the pandemic,” and indeed, if one looks at the trend, it’s clear that not only was the recovery very quick, but the sale of auto chips climbed to even higher levels in Q4 than they were at the beginning of the year.

A drop in semiconductors leads to delays in the supply of vehicles in the market for some companies.” – The Semiconductor Industry Association (SIA)

According to Ford, these shortages were caused by the fact that the wafer foundries had not increased the CAPEX over the previous several years ON improving the plant capacities to meet the booming demand. As a result, chip manufacturing requires a lead time of at least 26 weeks.

Considering the overall condition, we believe the semiconductor shortage is here to stay and will have a considerable impact till Q3 2021.     PSR

Aditya Kondejkar is Research Analyst – South Asia Operations, for Power Systems Research