A prolonged shortage of inputs, especially semiconductor chips, has forced Indian automakers and high-end bicycle makers to cut production in all categories. While Indian automakers appear to wait to overcome the chip starvation by limiting production, their global counterparts have been more creative in addressing the shortage.
Why did the potato chip famine happen?
The trigger point was the start of the Covid-19 pandemic and subsequent lockdowns around the world that forced the closure of crucial chip manufacturing facilities in countries like Japan, South Korea, China and the United States. A key characteristic of a flea shortage is that it almost always causes cascading effects, as the former creates pent-up demand which becomes the cause of the ensuing starvation.
What is the impact of the potato chip famine?
Consumers of semiconductor chips, which are primarily auto makers and consumer electronics manufacturers, have not received enough of this crucial input to continue production. Chip shortage is measured in terms of chip lead time, which is the gap between when a chip is ordered and when it is shipped. According to a Bloomberg report, which cites a Susquehanna Financial Group study, chip production lead time fell to 17 weeks in April, from around 12 weeks at the start of 2020. Additionally, with just-in-time deliveries, manufacturers automobiles generally have a low inventory. operations and relied on an electronics industry supply chain to power production lines as demand-driven. There were two reasons for this: a steady decline in input prices and an improvement in the processing power of the chips.
The number of transistors mounted in IC circuit chips has doubled every two years. Notably, the increase in chip consumption over the past decade is also partly attributable to the increasing contribution of electronic components in a car’s nomenclature. Electronic parts and components represent 40% of the cost of a new internal combustion engine car today, compared to less than 20% twenty years ago. Tokens represent a large part of this increase.
How have Indian automakers reacted?
Mahindra & Mahindra said it is factoring in some delays in the launch of its flagship Mahindra XUV500 and new Scorpio, with the company reporting concerns about the transparent availability of raw materials, especially semiconductors. âEverything about semiconductors is the biggest constraint in the supply chain right now,â said Rajesh Jejurikar, executive director of the automotive and farming sectors at M&M at a meeting on virtual media earlier this year. We learn that supply constraints have caused some production problems at Tata Motors Commercial Vehicles. At Bajaj Auto, production of high-end motorcycles has been hit, with senior executives reporting production losses in its line of KTM bikes due to the shortage of semiconductors and Bosch ABS parts. Ford Motor, the U.S. automaker, in a statement earlier this year said its two factories in Chennai and Gujarat face supply issues and expect the shortage to continue at least until at least. in the first half of 2021.
What are global automakers doing?
In addition to delaying vehicle deliveries, some companies have reportedly started to temporarily abandon high-end electronic features and capabilities to deal with the chip shortage. Japanese automaker Nissan is reportedly ditching navigation systems for thousands of vehicles, while French company Renault has stopped offering a larger digital display behind the wheel of its Arkana SUV. Amsterdam-headquartered Stellantis has tweaked its Ram 1500 pickup so that the digital rearview mirror that is usually standard is now only available as an upgrade option, Bloomberg reported.
Responding to a question about semiconductor import constraints impacting production, Jejurikar of M&M said, âWhile we would continue to have uncertainties with Bosch over the next few months, we would create a buffer and not would not let it affect our production. â
Among global automakers, Ford Motor Co said in a conference call to announce first quarter results on April 28 that it was likely to lose about half of its second quarter production due to the chip shortage. . “Estimates predict that the full recovery in automotive chip supply will extend through the fourth quarter of this year and possibly even into 2022, making it even more difficult for the industry to pick up volume. in the second half of this year, âsaid Jim Farley, chief executive officer of Ford as quoted by Reuters.
IHS Markit estimates that demand for semiconductors in the last quarter of 2020 has grown at a faster rate than expected. There are also indications that semiconductor suppliers are expected to be able to absorb demand based on light-duty vehicle production forecasts during 2021, particularly in the second half of the year.