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Automakers turn to vendor management to tide over chip crisis

Several industry analysts FE spoke with said that though the supply situation of semiconductors has not come back to normal levels, the prioritisation of variants, and efficient optimisation of production plans and schedules is helping original equipment manufacturers clock positive numbers.

Auto Sector

With the chip shortage continuing, passenger vehicle (PV) manufacturers have embarked on prioritising production of models going by their demand and stitching contracts with different vendors to tide over the crisis. As a result, monthly despatches to dealers are showing some signs of improvement.

For instance, Maruti Suzuki India’s domestic wholesales increased 3% in May in comparison to the same month in 2019, which was a normal non-pandemic year. During the same month, Hyundai Motor India’s volumes were flat, but that was due to a scheduled bi-annual maintenance shutdown at its plants in Chennai for six days during the month. Tata Motors recorded a growth of 298% in sales. Though this was on a low base, the growth reflected efficient supply-chain management. Mahindra & Mahindra’s despatches also grew by 31%.Shashank Srivastava, senior executive director, marketing & sales, Maruti, told FE that the peak problem for the company in terms of production, because of semiconductor-related issues, happened in September 2021, when production was just 40% of what was planned. “After that, we improved to about 60% in October, 80% in November, 91% in December, 92%-93% in January and February, and 95% in March. In April and May, it was between 93% and 95%. We will not be 100% in June also,” he said.

Acknowledging that there has been a continuous improvement in the supply of semiconductors, Srivastava said that Maruti is making its own adjustments in terms of model-wise and variant-wise production to maximise output. “Although the situation is getting better, it will prevail for some more time. I would expect normalcy going forward. However, if you ask me when it will become 100% normal, it will be difficult to predict at the moment, as the visibility is a lot less for the future,” he observed.

A Tata Motors spokesperson said that as the semiconductor situation and supply-side challenges remain uncertain, the company continues to monitor the situation closely, while remaining agile, taking prudent actions with a multi-pronged approach and finding innovative solutions with its suppliers to de-bottleneck production capacities.

“These actions have helped us on an ongoing basis and have not let the shortage impact the supply side to a large extent,” the spokesperson said. Driven by the growing demand for its SUVs like the Punch, Nexon, Harrier and Safari, Tata Motors has overtaken Hyundai, which has been India’s second-largest PV manufacturer for a very long time, twice in the last six months in terms of monthly PV volumes.Veejay Nakra, president, automotive division, Mahindra & Mahindra, said that the supply chain disruption, particularly related to semiconductors, was exacerbated in early FY22 due to events like Covid-related lockdowns, particularly in Malaysia in Q2-Q3, impacting the entire automotive industry. “The situation eased considerably in the last quarter due to improved supply of semiconductors. At Mahindra, we took several steps such as building greater fungibility and creating alternative sources for chips, etc, which contributed to improved volumes,” he added.

However, Nakra observed that there are challenges on some semiconductor-related parts on account of the supply chain-related disruptions due to the Ukraine-Russia conflict and Covid resurgence in China. “The situation is dynamic and at Mahindra, we are closely monitoring the situation and working with our partners to ensure steady supply,” he said.

Several industry analysts FE spoke with said that though the supply situation of semiconductors has not come back to normal levels, the prioritisation of variants, and efficient optimisation of production plans and schedules is helping original equipment manufacturers clock positive numbers. Some even said that to ensure supply, firms are diverting chip usage to high-demand models over the ones which are low in demand, and are prioritising premium PVs.

“The uncertainty around the semiconductor supply still persists but most OEMs have adapted to it and build schedules are adjusted accordingly. The shortage issue is expected to continue through the fourth quarter of CY2022, and beyond that, there is not much clarity at this point,” said Suraj Ghosh, director, mobility, S&P Global.

Grant Thornton Bharat partner and auto sector leader Saket Mehra said that while vehicle demand persists in the market, the waiting period for top models has not come down and continues to be above six months. “However, the lead time for chip supply deliveries was flat in May and therefore, it is expected that the supply chain hassle may ease in the short to medium term,” he noted.

Markets like Taiwan, Japan and South Korea have witnessed investments to increase capacity, which may result in supply chain improvement by the end of CY2022, according to Mehra.

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