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Indian automotive sector: shortage of semiconductors, raw material problems continue to haunt OEMs

By on May 21, 2022 0
While at the start of 2022 automotive OEMs were expecting an improving supply and demand scenario, the turn of events over the past five months means they should now temper their expectations. . Geopolitical strife and the resurgence of Covid-19 prolonged semiconductor shortages and induced fuel price volatility, hurting demand in the last quarter of the prior year.

OEMs have undertaken price hikes in recent months due to continued pressures on input costs.

The data shows that while the domestic sales volume increased by 15.7% on a yearly basis, it registered a decline of 5% on a monthly basis due to multiple price hikes and shortages of semiconductors.

Exports also fell 5.7% on an annual basis due to higher oil prices and a supply crisis as China recovers from a resurgence in Covid cases.

Pune-based auto components maker Bharat Forge in its fourth quarter earnings update earlier this week said supply chain issues continued to be widespread and were not limited to semi- drivers. “Additionally, local lockdowns/geopolitical situation in certain geographies are negatively impacting internationally sourced materials and causing high inflation overall,” he said.

Ratings firm CareEdge said in a note that it expects consumer sentiment to be dampened due to OEM price hikes and fuel inflation.

“The RBI’s decision to raise the repo rate by 40 basis points will lead to more expensive auto loans and thus further hurt demand. In addition, concerns about global supply chain constraints due to the lockdown in China and the Russian-Ukrainian war also persist,” he said.

“RBI’s decision to raise the repo rate by 40 basis points clearly caught everyone off guard. This move will further dampen and dampen sentiment,” the Federation of Automobile Dealers Associations had said earlier this year. this month.

Outlook for the year


Factors such as increased government spending on infrastructure, a normal southwest monsoon, new product launches by OEMs and pent-up demand will support industry growth in the current fiscal year.

The research indicated that this fiscal, commercial vehicle (CV) and passenger vehicle (PV) volume could increase by 18% and 12%, respectively, after increasing 26% and 13% in the previous fiscal year.

On the other hand, two-wheelers and tractors are expected to underperform again, on a high base effect. The recovery and robust growth of the tractor segment rests on the prediction of a normal monsoon coming true.

“CV demand growth, particularly for medium and heavy duty commercial vehicles (MHCV), is expected to be supported by replacement demand due to improved utilization and profitability for fleet operators and public infrastructure spending,” said Pushan Sharma, director of CRISIL Research.

While at present the semiconductor issues persist, analysts expect them to ease by the second half of FY23.

“Semiconductor supply constraints and container availability issues are expected to impact sales and production in the near term, which we believe will be resolved by H2FY23,” according to

Securities.

Analysts expect the three-wheeler and M&HCV segments to see strong double-digit volume growth in the current fiscal year. “We believe the long-term fundamentals remain intact for the automotive sector,” Reliance Securities said.