AgenciesAuto companies battling against the shortage of semiconductors are now faced with another issue-- increasing chip prices. The Indian auto OEMs have started getting requests from chip manufacturers to increase prices, said 3 companies familiar with the matter.
The combination of supply shortages and surging demand has put pressure on prices with overall chip prices going up by 4-6% in 2021, with supply constraints set to last for the next 2-3 quarters. Not only car companies, semiconductor firms are also looking for alternatives.
With other industries driving up demand for the chip makers, it's who pays more, gets the supply, say experts.
The automotive industry, which is lower in the semiconductor supply pecking order is rethinking its supply chains and talking with suppliers as well as chip vendors to resolve the shortage.
Other than automotive, telecom, electronics, industrials are driving up demand and prices are likely to go up depending on how chip manufacturers are allocating supplies, says Rajat Mahajan partner at Deloitte.
Korean and Japanese car companies in India seem to have found a short term solution to the prevailing issue of shortage of semiconductors, currently plaguing the Indian auto industry. These companies seem to have a larger number of local suppliers and a healthier chip stockpile to tide over the crisis over the next 2-3 months.
These auto majors with stocks in their cross-country supply chains are able to handle this better.
While the auto companies are facing a challenge, some have created a stock bank, which is fulfilling their immediate requirements. "It's multi-sourcing from various countries. We may have a 2-3 month visibility but in the long run, we may get impacted”, says Naveen Soni, Sr VP at Japanese car maker, Toyota Kirloskar.
Some of the chip suppliers are Renesas Electronics, Texas Instruments, STMicroelectronics for logic/ analog ICs, microcontroller, microprocessors and memory. These chips are used in the powertrain, safety, telematics, infotainment and body electronics.
Indian auto companies import electronics and related systems to the tune of Rs 30,000 crore.
Given the current chip crunch, the automotive industry is rethinking its supply chains and talking not just with suppliers but also with chip vendors as it identifies alternative sources to keep the production lines running. Tata Motors at its Q3 results mentioned that while they have not been impacted till date, demand pressures have been adding to the prevailing supply issue.
“We must have better visibility across our multi-tier supply chain to manage lead time sensitivity. This calls for re-modelling supply chains, adopting digital solutions and using right analytics as the way forward”, says Thomas Flack, President and Chief Purchasing Officer at Tata Motors.
Automobile experts feel companies with larger volumes have multiple sourcing regions. And depending on the demand they move supply as most models have similar engines and electronics. They say clearly these companies have an edge for 2-3 months but eventually may get impacted. Mails sent to Hyundai, Maruti Suzuki did not elicit a response.
Homegrown Mahindra has been severely hit by the semiconductor issue which has impacted the supply of their Thar. "What has been a bit of a concern is the supply constraint in the automotive industry. We have managed December and January well and hoping that February and March will be better from the growth perspective. Given the global nature of the situation, it may spill into Q2 of the calendar year”, said the company’s MD, Pawan Goenka at the recent Q3 results.
Semiconductor manufacturing is a complex global intertwined ecosystem, which has led to a supply chain that is vulnerable to macroeconomics, natural disasters and other factors”, according to a recent EY report.
Clearly, it's a miscalculation of demand and systemic issues in the supply chain. For car companies lean supplies may help efficiencies in a normal situation, it's clearly not helping to weather this storm.
The combination of supply shortages and surging demand has put pressure on prices with overall chip prices going up by 4-6% in 2021, with supply constraints set to last for the next 2-3 quarters. Not only car companies, semiconductor firms are also looking for alternatives.
With other industries driving up demand for the chip makers, it's who pays more, gets the supply, say experts.
The automotive industry, which is lower in the semiconductor supply pecking order is rethinking its supply chains and talking with suppliers as well as chip vendors to resolve the shortage.
Other than automotive, telecom, electronics, industrials are driving up demand and prices are likely to go up depending on how chip manufacturers are allocating supplies, says Rajat Mahajan partner at Deloitte.
Korean and Japanese car companies in India seem to have found a short term solution to the prevailing issue of shortage of semiconductors, currently plaguing the Indian auto industry. These companies seem to have a larger number of local suppliers and a healthier chip stockpile to tide over the crisis over the next 2-3 months.
These auto majors with stocks in their cross-country supply chains are able to handle this better.
While the auto companies are facing a challenge, some have created a stock bank, which is fulfilling their immediate requirements. "It's multi-sourcing from various countries. We may have a 2-3 month visibility but in the long run, we may get impacted”, says Naveen Soni, Sr VP at Japanese car maker, Toyota Kirloskar.
Some of the chip suppliers are Renesas Electronics, Texas Instruments, STMicroelectronics for logic/ analog ICs, microcontroller, microprocessors and memory. These chips are used in the powertrain, safety, telematics, infotainment and body electronics.
Indian auto companies import electronics and related systems to the tune of Rs 30,000 crore.
Given the current chip crunch, the automotive industry is rethinking its supply chains and talking not just with suppliers but also with chip vendors as it identifies alternative sources to keep the production lines running. Tata Motors at its Q3 results mentioned that while they have not been impacted till date, demand pressures have been adding to the prevailing supply issue.
“We must have better visibility across our multi-tier supply chain to manage lead time sensitivity. This calls for re-modelling supply chains, adopting digital solutions and using right analytics as the way forward”, says Thomas Flack, President and Chief Purchasing Officer at Tata Motors.
Automobile experts feel companies with larger volumes have multiple sourcing regions. And depending on the demand they move supply as most models have similar engines and electronics. They say clearly these companies have an edge for 2-3 months but eventually may get impacted. Mails sent to Hyundai, Maruti Suzuki did not elicit a response.
Homegrown Mahindra has been severely hit by the semiconductor issue which has impacted the supply of their Thar. "What has been a bit of a concern is the supply constraint in the automotive industry. We have managed December and January well and hoping that February and March will be better from the growth perspective. Given the global nature of the situation, it may spill into Q2 of the calendar year”, said the company’s MD, Pawan Goenka at the recent Q3 results.
Semiconductor manufacturing is a complex global intertwined ecosystem, which has led to a supply chain that is vulnerable to macroeconomics, natural disasters and other factors”, according to a recent EY report.
Clearly, it's a miscalculation of demand and systemic issues in the supply chain. For car companies lean supplies may help efficiencies in a normal situation, it's clearly not helping to weather this storm.
Read More News on
Download The Economic Times News App to get Daily Market Updates & Live Business News.
1 Comment on this Story
 | Kumar 1 hour ago These are all the excuses for increasing the prices. |