*Auto industry fails to pick up pace as chip shortage hurts production | Business Standard News

Clipped from: https://www.business-standard.com/article/companies/auto-industry-fails-to-pick-up-pace-as-chip-shortage-hurts-production-122050100792_1.html

Fresh chip scarcity may result in 4th straight year contraction in volumes

Photo: Bloomberg

Photo: Bloomberg

Automakers struggled to lift sales in the first month of the new financial year (2022-23) as a fresh scarcity of semiconductor chips hamstrung production.

While there was optimism that the scarcity of electronic chips would gradually ease, a surge in Omicron variant infections in China prompted authorities there to lock down residents, close factories and stop truck traffic, snarling already frayed supply chains.

The latest disruption increases the risk of a fourth straight year of contraction in volumes for the nation’s automakers. The first two waves of Covid, which triggered a semiconductor shortage, caused volumes to shrink in 2019-20, 2020-21, and 2021-22. However, two-wheeler companies recorded recovery in sales, primarily contingent on a good wedding season.

India’s largest automaker Maruti Suzuki India (MSIL) sold a total of 150,661 units in April, down 5.65 per cent from 159,691 sold in April last year.

“The shortage of electronic components had a minor impact on production, mainly domestic. The company took all possible measures to minimise the impact,” said MSIL.

It sold 17,137 units of the Alto and the S-Presso in the mini segment in April, against 25,041 last year.

The compact segment with a line-up of the Baleno, Celerio, Dzire, Ignis, Swift, Tour S, and the WagonR came down to 59,184 units in April, compared with 72,318 last year. Overall, both segments came down to 76,321 units, from 97,359 last year. The company said last week it was currently sitting on an order book of over 350,000 vehicles. It said it was unable to deliver cars to customers since chip shortage had crimped production.

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“The supply situation of semiconductors is still uncertain. This has a bearing on production,” said Ajay Seth, chief financial officer, MSIL.

To cushion the blow, the company is placing long-term bulk orders with chipmakers, along with its parent firm Suzuki Motor Corporation.

South Korean motor giant Hyundai Motor Company also reported a 10 per cent sales decline for April, selling 44,001 units, compared with 49,002 in April 2021.

At a time when nearly every manufacturer is seeing either a component or chip shortage holding up production, Tata Motors has managed to double its sales. Total sales for the company increased 74 per cent in April to 72,468 units, compared with 41,729 in April 2021.

The company has brought down the use of chips by going for an ‘all-in-one’ strategy.

“In one component we were able to successfully bring down the number of semiconductors we were using by half. We have been looking to convert application-specific chips to standard ones. We have gone in for chip optimisation. It is about reducing dependence and validating them in a very short period,” said Shailesh Chandra, president (passenger vehicles business), Tata Motors, in a recent post-earnings call.

Among two-wheeler companies, Hero MotoCorp, with largest market share, recorded total sales of 418,622 units in April – rising 12.45 per cent year-on-year. Sales of the latest month were driven by robust growth in the motorcycle segment.

“Our interaction with leading industry channel partners indicates recovery in two-wheelers owing to the wedding season and improved cash flows in the hands of consumers attributable to the harvesting of the rabi crop,” said Jinesh Gandhi, research analyst, Motilal Oswal Securities.

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