Chip Shortage Threatens Indian Automakers’ Nascent Recovery

Sales of laptops and mobile phones to televisions surged as peopled logged in remotely during the pandemic—increasing the requirement for chips, the brains of electronic components. According to Bosch Ltd., a key supplier of chips to automakers, demand from global automobile and 5G telecom networks makers worsened the shortage.

Microprocessors for auto parts complying with Bharat Stage VI emission standards are made primarily in Europe (Germany) by companies such as Continental AG and Bosch, according to Hetal Gandhi, director, Crisil Research. But these companies, she told BloombergQuint, rely on China, Taiwan, South Korea and other markets for semiconductors that go into making the chips

“Owing to the surge in demand from the Chinese passenger vehicle market (about 10-12% y-o-y increase in April-October 2020) as well as higher demand for consumer electronic goods and impact of the pandemic on the supply chain in Europe, there has been a shortage of these microprocessors,” Gandhi said.

The crunch threatens to derail recovery for automakers in India after an unprecedented disruption in March, April and May caused by one of the strictest Covid-19 lockdowns in the world. BloombergQuint reported in November how Mahindra and Mahindra Ltd. continues to face supply-chain issues. The automaker, along with peer Tata Motors Ltd., later acknowledged the problem.

Bosch, in an exchange filing last week, said that imports were impacted because of "severe supply shortage for imported microprocessors". It reiterated that in an emailed response to BloombergQuint, citing global crunch for microcontrollers.

Nirmal K Minda, chairman of Minda Industries Ltd., another automotive supplier, while admitting the pressure on the semiconductor supply chain, said his company has been able to manage the supply with the help of “collaborators”.

Chips control everything from anti-lock braking systems and fuel-efficiency of engines to airflow in the car. And their use has been progressively increasing, Deepak Jain, president of the Automotive Components Manufacturers Association, said. Any hindrance in the availability of one key part in manufacturing could disrupt the entire ecosystem, he said.

Bigger Challenge For Diesel Portfolios

Automakers with a diesel portfolio, said Puneet Gupta, associate director at IHS Markit, are likely to be impacted the most. Since the transition from BS-IV to VI happened in a short period, with most changes required in diesel engine parts, he told BloombergQuint, makers of diesel engine didn’t get enough time to build a robust supply chain. "Most of them relied on imports for some of the key components including ECUs (electronic control units) from markets like China."

Mahindra & Mahindra Ltd., with a largely diesel portfolio, said in an exchange filing said that the shortage of semiconductors is likely to cause a production loss in the quarter ending March.

Tata Motors, another automaker with diesel models in passenger and commercial vehicles, said in an emailed response that it's facing “some Covid-related challenges”, including embedded electronics across the auto industry. “In this tight supply situation, we see an impact in some applications in our CV business,” it said, adding that’s working with the supplier to resolve issues.

Truckmaker Ashok Leyland Ltd., too, is reviewing the supply-chain status regularly in line with its production demand, Vipin Sondhi, managing director and chief executive officer, said an emailed statement. The company, he said, is working with partners to "resolve any challenges that may arise due to extraneous circumstances".

Gandhi, however, expects impact across automakers, including two-wheelers. “As we have evolved with the emission journey, as well as with electronic journey, the percentage of dependence on the microchips has gone up substantially,” she said. The impact on specific models will be more than others, depending on which of their suppliers are impacted, Gandhi said.

Continental sees the potential delivery bottlenecks may last into 2021. The additional volumes required will be available in six to nine months, its spokesperson said in response to emailed queries. “Semiconductor manufacturers have already responded to the unexpected demand with capacity expansions.”

Gandhi cautioned that production could get impacted in the upcoming quarters if supply remains constrained, and the microprocessor chip companies have already decided to increase prices. Supply from expanded capacity, she said, is expected only from June-September 2021.