Chip shortage, key hurdle in 2021 – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/companies/chip-shortage-key-hurdle-in-2021/article38050708.ece

The automobile industry is still clueless about when the chip shortage issues would end.   –  The Hindu

The automobile industry is still clueless about when the chip shortage issues would end.   –  The Hindu1/2

The automobile industry is still clueless about when the chip shortage issues would end.   –  The Hindu2/2×

Despite several speedbreakers, auto industry hopes to have a smoother ride in 2022

As 2021 draws to close, a quick analysis of the Indian passenger vehicle (PV) industry indicates that it will end the calendar year with a decent volume level despite multiple speedbreakers including an unexpected shock by way of semiconductor shortages that constrained production.

“I would say 2021 was a year of mixed challenges. The calendar year began well with record volumes in the March quarter. Though the second wave was more severe, the supply chain was less affected. We witnessed a sharp bounce back of demand from June onwards. But the industry ran into another challenge regarding the semiconductor shortage issues,” said Shashank Srivastava, Senior Executive Director, Marketing and Sales, Maruti Suzuki India.

Speedbreakers galore

When the year started, 2021 was projected as a strong recovery year leaving behind the strife created by the pandemic in 2020. Unfortunately, the second wave in the middle of 2021 proved to be brutal for India constricting the demand.

The PV industry clocked 9 lakh plus wholesales in Q1 calendar year 21. But state-wise lockdowns and related restrictions (unlike an all-India lockdown in 2020) led to decline in volumes after March 2021, and May 2021, which saw the peak of the second wave and it reported the lowest PV volumes. Thereafter, it again picked up in the months of June and July 2021, but fell sharply in the months of August and September 2021.

“While demand was ramping up, events such as the earthquake in Japan, fire at Renesas Electronics Corporation and lockdown in Malaysia negatively impacted the semiconductor availability, therefore creating a significant stress in producing vehicles and meeting the demand,” said Shailesh Chandra, President Passenger Vehicles Business, Tata Motors.

“Shortage of semiconductors to the Tier 1 and Tier 2 suppliers of OEMs, affected supplies of engine ECU, keyless entry, ABS systems, infotainment systems, etc. As a result, the industry witnessed one of the worst sales during the festival months of October and November this year,” said Rajesh Menon, Director General, Society of Indian Automobile Manufacturers (SIAM). Analysing the challenges, he describes how the high container freight charges and its shortages were a deterrent for both imports and exports. “Also, higher steel prices during the year put enormous cost pressures and led to several price increases across vehicle segments,” he said.

During the January-November 2021 period, total PV volumes stood at 2.76 million units as compared to 2.11 million units in the same period in 2020 and 2.70 million units in 2019. “Despite multiple challenges, the PV industry is expected to close the year with more than 3 million units. Our estimate is 3.08 million units for 2021,” said Srivastava.

SUV boom

Amid the gloom, the big story has been the SUV boom, which made the industry move forward with some optimism. The continuing buyers’ shift towards SUVs and numerous SUV launches, packed with features and better safety norms, created some excitement in the market during the year. “SUVs have seen large offtake across segments whether it was the incumbent models or the new launches in the year and is expected to rule the sales charts going forward too,” said Ashim Sharma, Partner & Group Head Business Performance Improvement Consulting at Nomura Research Institute.

As a result, the utility vehicle segment will end 2021 with a record volume of more than 1.2 million units, highest-ever annual volume in its history. Despite the increase in prices of vehicles, sales of SUVs will continue to soar. There is a huge backlog of SUV orders as every company is battling to meet the demand on account of chip shortages.

“The gap between demand and supply further widened with the strong festive demand but continued stress on semiconductor supplies. Had it not been for the semiconductor availability, PV industry sales could have been 10-15 per cent higher in 2021 as against 2020,” said Chandra.

Even as the auto industry is hoping for an early end to chip shortages amid robust demand scenario in the domestic market, there is a sudden concern over Omicron as the industry fears that the rise of the new Covid variant may impact supply of chips if countries that produce semiconductors go into lockdown mode. The PV industry will be stepping into 2022 with cautious optimism as it may have to navigate rough weather for some more time.

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