Thanks to automotive semiconductor ICs that modern cars come with high-end functionalities like navigation control, infotainment systems, collision detection systems, 3D mapping applications, augmented-reality technologies and so much more
Semi-conductor shortage is posing a great challenge for the global automobile industry and the Indian industry is also feeling the heat. Dealers’ organisation – Federation of Automobile Dealers Associations (FADA) has expressed concerns, citing that the dealers are losing business as a result of non-availability of vehicles, as semi-conductor shortages continue to hamper production.
The global semiconductor outage kept the waiting period of Passenger Vehicles (PVs) as high as eight months. FADA showed that 50 per cent PV dealers lost over 20 per cent sales due to non-availability of vehicles,” the industry body said.
This is a disturbing development considering that the industry was already under a lot of pressure. Fears that this would break the current momentum are not misplaced.
A recent report by Autocar India suggested that vehicle maker downtime announcements add up to around a 400,000-unit loss from forecast Q1 global vehicle production, but the opportunity cost – if the companies were producing to full capacity – was around 715,000 units. It quoted data analytics and consulting firm GlobalData estimates in the report with a caveat that the exact impact on the industry was hard to ascertain. In value terms, the Q1 revenue loss was in between USD 12 billion and USD 22 billion.
Automotive semiconductor ICs are used for serving various purposes in an automobile. The manufactures are increasingly electrifying the vehicles to load state-of-the-art and cutting edge features into the vehicles. These features includes functionalities like navigation control, infotainment systems, and collision detection systems. The vehicles now come with 3D mapping applications, augmented-reality technologies, ADAS (Advanced Driver Assistance Systems) and EV batteries. Thanks to the semi-conductors being used in the vehicles now that this has become possible. This has led to an increase in demand for semiconductor wafers.
There were media reports which suggested that FADA has urged the government to hold diplomatic discussions with countries like Taiwan, which manufactures semiconductors,so that the momentum in sales of the automobiles is not lost.
According to a report published by Mordor Intelligence, the global automotive semiconductor market was valued at USD 48.13 billion in 2020 which is expected to reach a value of USD 129.17 billion by 2026 taking the industry growth rate at a CAGR of 17.94 per cent over the forecast period (2021-2026).
Mordor Intelligence is a Hyderabad-based market intelligence and advisory company.
Such is the level of electrification that is expected to be done. With the focus now on clean fuel, most automakers have now started focusing on Electric Vehicles (EVs). In India, while the infrastructure is an issue, the industry and government have been putting a lot of stress on it.
Why this crisis?
As the Coronavirus Pandemic hit the world in 2020, catching most sectors off-guard, automakers across the globe cutvehicle production. This had a bearing on the entire value chain including the component makers. With everybody locked in their homes, the sales plunged due to the absence of any fresh demand.
Chipmakers were hit too. One of the reasons being given for the ongoing crisis is the demand coming from companies making electronic devices like laptops, mobiles, gaming devices and webcams. Chipmakers saw a spurt in demand from the electronics companies. The demand for such devices shot up on the back of work from home scenario, which was forced upon the world in the wake of the coronavirus pandemic.
In its statement, the Semiconductor Industry Association (SIA) has attributed the shortage to substantial swings in demand due to the pandemic. It said that not only was the recovery quick, but the demand for auto chips jumped to levels much higher in Q4 of 2020 than they were at the beginning of the year.
The situation has only aggravated due to fire at Japan’s Renesas Electronics Corp. The problem has become so huge now that many leading automakers across Asia, Europe, North America and other parts of the world have suspended operation at their manufacturing units.
Moreover, cold weather in the US has also severely hampered the semi-conductor production forcing companies like Toyota, Ford Motor, Nissan Motor, Honda Motor, Mitsubishi Motors Corp, BMW and several others to reduce or suspend productions of vehicles. This problem has spiralled and the Indian auto companies are also the ones getting severely hit.
What is at stake?
The sales of passenger cars, and two wheelers have seen a growth over the past 3-4 months. As per SIAM’s figures, the auto industry registered a 5.97 per cent sales growth in India at 17.32 lakh units in February as against 16.5 lakh units in January 2020. Four-wheeler sales increased from 2.48 lakh units in January 2020 to 2.76 units in February, registering over an 11 per cent growth.
Meanwhile, two-wheelers sales went up by 6.6 per cent, from 13.41 units in January 2020 to 14.29 units last month.
It is absolutely critical for the domestic automobile industry to sustain the momentum and without uninterrupted supply of semi-conductors it will not be possible. As per the estimates by some industry experts, it could take at least another 6-9 months for the supply to become smooth.
With rise in the overall prices of vehicles and cost of owning(https://www.manishmarwah.org/fuel-price-automobile-industry-impact/) a vehicle growing manifolds year-on-year, the delay in delivery could further add to the burden. It could potentially defeat the entire purpose of owning a vehicle. The sales of vehicles – two wheeler and four wheeler – have grown as people have preferred personal mobility over public transport because of the pandemic.