Semiconductor shortage impact on Indian auto industry: 7 lakh orders pending

semiconductor shortage impact on india

Each and every automotive manufacturer around the globe have been affected by the global shortage of semiconductors and owing to the undersupply of this crucial component a long list of orders in the reservation books of the automakers is yet to be fulfilled. In India alone, the carmakers are sitting on the books of 7 lakh pending orders as of December 2021, according to the recent Economic Survey 2022. Furthermore, it was also reported in the survey that the average lead time in the automobile industry for 2021 has been around 14 weeks globally and a similar situation has been witnessed by the Indian manufacturers.

Semiconductor shortage impact on Indian auto industry: 7 lakh orders pending

A total of 2,19,421 passenger vehicles were sold in India during the month of December in 2021 which was down by 13 percent on a Year-on-Year basis as per the reports from the Society of Indian Automobile Manufacturers (SIAM). In addition to the passenger vehicles sales, the country’s two-wheeler sales also plummeted to the lowest it has been in the last 9 years. The end of Q3 of the fiscal year 2022 witnessed this steep decline in the demand for two-wheelers because the fuel costs in the nation rose to an all-time high and on top of it the lower purchasing power and rural distress have been associated with the same.

“The manufacturing of semiconductors requires large amount of capital and has an average gestation period of 6-9 months. Moreover, it has a fairly long production cycle of about 18-20 weeks. Hence, any recovery from the supply chain disruptions will be a slow and costly affair,” said a report by investment bank Goldman Sachs. The report also revealed that a total of 169 industries were affected due to this global shortage of semiconductors.

Recently, Maruti Suzuki India Limited revealed in the third quarter of FY2022 that they currently have more than 240,000 pending customer orders. While the country’s largest automaker also stated that although the electronics supply situation is improving gradually there is still no certainty about the future. The company also revealed that it is looking to ramp up the production in the fourth quarter of FY2022 but despite that, it won’t be able to operate at its full capacity. Other prominent Indian automakers like Tata Motors and Mahindra along with Hyundai India also have around 1 lakh pending orders each.

What causes delivery delays?

Semiconductor shortage impact on Indian auto industry: 7 lakh orders pending

Here on CarToq, we have already explained how the current Covid pandemic became the reason behind this issue of supply shortage for the semiconductor but here’s a refresher. Many manufacturers who use chips in their products had pulled out orders as they thought the pandemic will decrease the demand for their product. In contrary to that, people started purchasing electronic items online and when the demand skyrocketed, there weren’t enough chips available for new orders.

Although chips may look like small pieces of equipment, it takes almost two months to make one chip. One chip goes through several stages before it can be installed in a car or an electronic item. On top of it, there are not many manufacturers who make semiconductor chips in the world and some of the manufacturers of it are SMIC, TSMC and Samsung.

Due to this slowdown in the supply of semiconductor chips, some of the models currently on the market like the all-new SUV from Mahindra the XUV700 has a booking period of up to 1.5 years on some of its variants and the best selling model from Hyundai India portfolio, the Creta has a lead time of around 6-8 months.