The global chip shortage that disrupted India’s auto industry for much of the 2021, 2022 and 2023 fiscal years is finally showing signs of easing. Supply chain challenges have been resolved, and improved predictive demand forecasting has enabled more stable production schedules.
According to a press release from Crisil Ratings, the shortage of semiconductors, which are essential components in a wide range of electronic devices, has had a major impact on auto manufacturing, causing production delays and a decline in sales in India.
However, the situation is gradually improving, and the supply-demand balance is expected to normalize by FY2026 as new manufacturing capacity comes online.
Chips are critical components with unique electrical properties that serve as the backbone of electronic equipment and devices.
The computer and communication equipment (C&C) sector consumes approximately 63% of global chip production, followed by the automotive sector at 13% and the consumer and industrial sectors at 12%.
Passenger vehicles (PVs) are the most chip-intensive of all vehicle types, using an average of 1,500 chips.
Chip requirements increase as advanced electronic features are incorporated, and electric PV uses nearly twice as many chips as internal combustion engine (ICE) PV.
Recent developments such as improved chip supply and reduced demand for computers and mobile phones have led to a reallocation of chip resources, benefiting the automotive sector.
“The chip shortage faced by Indian passenger car manufacturers is easing, with current chip supply meeting 85% to 90% of total demand,” said Anuj Sethi, senior director, CRISIL Ratings. Production losses due to chip shortages were previously halved to around 300,000 PV in fiscal 2023, but are now estimated to have further decreased to less than 200,000 PV by the end of September 2023.
Despite significant improvements in chip availability, automakers still have a backlog of approximately 700,000 new orders at the end of September 2023.
The global auto industry’s recovery from the COVID-19 pandemic caught manufacturers by surprise who had not placed large chip orders before demand reignited in the second half of fiscal 2022. Ta.
Production lines were already prioritizing the C&C segment to accommodate the surge in demand for personal computers, laptops, and mobile phones due to remote work, virtual learning, and telehealth services.
Geographically, the chip industry is unevenly distributed, with Western countries dominating chip design and architecture, while semiconductor research laboratories are concentrated in Eastern countries such as Taiwan and South Korea.
To balance chip supplies, the United States and the European Union have provided about $100 billion in incentives to encourage the development of local semiconductor factories.
Many global companies are investing approximately USD 360 billion in establishing new facilities, which are expected to be operational by fiscal year 2026.
Chip demand is expected to increase in the medium term in India due to increased adoption of electric vehicles and growing demand for feature-rich ICE vehicles.
Naren Kartic K, Associate Director, CRISIL Ratings, said, “India currently meets its chip demand through imports, but the government has earmarked around $10 billion to strengthen the semiconductor ecosystem and has provided incentives of up to 50%. “We are taking proactive steps to provide this.” Project costs to support foundry establishment. We are poised to strengthen India’s semiconductor capabilities through joint ventures with established global companies and commissioning of new facilities. ”
Easing the chip shortage is a promising development for India’s auto industry, bringing with it the prospect of more stable production and faster vehicle deliveries to meet growing market demand. (Ani)