Chip Shortage, Poor Rural Demand Plague Auto Sales In November

Sales of most Indian automakers fell in November, following an uptick in the preceding month, amid a global shortage of semiconductor chips and poor rural demand.

Factory-gate shipments of a majority of the automakers fell between 1% and 35% on muted demand and supply constraints, a BloombergQuint poll of analysts from Dolat Capital, Emkay Global and Nirmal Bang Institutional Equities showed.

To be sure, sales of cars and two-wheelers have already been battered by the Covid-19 pandemic’s second wave and the chip shortage, which worsened in the second quarter of the ongoing financial year. That stalled a nascent recovery in the sector following the disruption caused by last year’s national lockdown.

In the passenger vehicle segment, sales of only Maruti Suzuki India Ltd. rose, by 7.33% month-on-month, the poll showed.

“PV industry volumes should fall due to supply-related challenges, though volumes should be slightly better on a sequential basis,” analysts at Emkay Global said in a note. Analysts at Dolat Capital, however, said the underlying demand remains strong as enquiry and booking continues to be “healthy”.

“The semiconductor shortage has resulted in original equipment makers shifting focus on not featuring models which are being pushed through their dealerships,” Dolat Capital said.

A similar story played out among two-wheeler makers, too. Barring Eicher Motors Ltd.-owned Royal Enfield, sales fell by up to 36% over the preceding month at other companies.

“2W (two-wheeler) demand was impacted by poor rural demand and hit by entry-level motorcycles mainly due to increase in product prices and financial stress on the bottom of the pyramid people,” Dolat Capital note said. It said the premium segment was also hit by the chip shortage.

The commercial vehicle segment seems to be witnessing a recovery, aided by recovery in replacement demand and pick up in infrastructure and mining activities, brokerages said. “Commercial vehicle industry volumes are expected to improve, aided by demand for intermediate commercial vehicles, tippers and some replacement demand,” Emkay Global said in its note.

Outlook

Brokerages are hopeful that demand would gather momentum in the coming months once the chip shortage eases.

• Nirmal Bang expects the passenger vehicle segment to recover faster on the back of easing of lockdown restrictions, sustained demand, low inventory levels, high waiting periods and growing preference for personal mobility.

• In two-wheelers, while initial trends suggest a relatively muted start to the marriage season, Nirmal Bang said the entry-level segment has been witnessing “better trends at the margin on the back of improving consumer sentiments”.

• Emkay Global expects commercial vehicle segment to maintain positive momentum. Nirmal Bang expects the sharp uptick in volumes in the segment to sustain as economic activities pick up pace and financing issues or cash-flow constraints get ironed out in the coming months.