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

Aditya Kondejkar

Aditya Kondejkar is Senior Research Analyst – India for PSR Power Systems Research India Private Limited, PSR's office in Pune, Maharashtra, India. Aditya holds a bachelor's degree in mechanical engineering. Prior to joining PSR, Aditya worked as a QA-Warranty engineer at the Piaggio Vehicles engine plant, during which time he gained a great understanding of the engine powered vehicle and equipment industries. He further expanded his experience to include the B2B and B2C market research industry. His expertise in forecasting, analyzing qualitative insights and converting them into quantitative figures is essential in his work at PSR. Aditya is responsible for managing all of the OE Link™ data for India and other countries in the Indian Subcontinent region. He also supports the global team in custom project research and analysis and helps address client queries related to our data. Aditya's articles have been published in MOTORINDIA, and he is a regular contributor to PSR's PowerTALK newsletter and Quarterly Update Bulletin where he shares insights regarding forecast trends in the India market.

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