![](\"https:\/\/im.rediff.com\/money\/2021\/jul\/22chip.jpg?w=670&h=900\")
<\/p>\nEven as India’s passenger-vehicle sales touched a record high of 3.9 million units in 2022-23, growing 27 per cent over the previous financial year, the country’s largest carmaker, Maruti Suzuki India (MSIL), said on Monday uncertainties in the electronic-component supplies might affect production in FY24.<\/p>\n
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MSIL said the shortage of electronic components had some impact on production in FY23.<\/p>\n
“The company took all possible measures to minimise the impact.<\/p>\n
“As the supply situation of electronic components continues to be unpredictable, it might have some impact on the production volume in FY2023-24 as well,” it said in a statement to the stock exchanges.<\/p>\n
MSIL produced 1.92 million units in FY23 (including light commercial vehicles), 16 per cent more than the 1.65 million in FY22.<\/p>\n
Semiconductor chips have become a significant component in today’s cars.<\/p>\n
A chip can be a simple component containing a transistor, or an integrated circuit that controls a complex system.<\/p>\n
Popular sport utility vehicles contain hundreds of semiconductor chips in them, which explains the high waiting period for these cars, especially the higher-end ones.<\/p>\n
A major reason behind the chip shortage, which started during the pandemic, is the dominance of Taiwan in this space.<\/p>\n
Taiwan and South Korea make up about 80 per cent of the global foundry market. Foundries are facilities that manufacture chips.<\/p>\n
And moreover, Taiwan Semiconductor Manufacturing Company (TSMC) enjoys a lion’s share.<\/p>\n
China is now trying to create its own capacity. During the beginning of the pandemic, major chip-making factories in Taiwan, Japan, South Korea, and China had to stop production, leading to pent-up demand, which eventually had a cascading effect. Indian auto manufacturers import semiconductors, components, assemblies from suppliers in Germany, the US, Japan, and Taiwan.<\/p>\n
Other major carmakers too maintain a cautious stance.<\/p>\n
Veejay Nakra, president, automotive division, Mahindra & Mahindra (M&M), told Business Standard<\/em>: “We continue to see disruptions in the supply chain of semiconductor-related parts, which have constrained production in some of our brands.<\/p>\n “The scenario remains dynamic and we are monitoring it closely.”<\/p>\n M&M has reported the highest ever annual sales of sport utility vehicles at 356,961 units, a 60 per cent year-on-year growth rate, during FY23.<\/p>\n In March the company said its auto sales stood at 35,976 units, the highest ever.<\/p>\n Growth in sales and production in FY23 had come with some easing in the chip-supply situation and pent-up demand. However, companies have turned cautious now, and the chip shortage may derail production plans for FY24.<\/p>\n Signs of production loss are visible.<\/p>\n Sample this: MSIL missed producing 51,000 units in Q1FY23, followed by 35,000 in Q2, and then 46,000 in Q3.<\/p>\n Assuming a loss of 40,000-45,000 in the fourth quarter, the company’s full-year loss on account of chip shortage would be around 170,000 units.<\/p>\n Considering it makes Rs 500,000 on average for each vehicle sold, this works out to a revenue loss of Rs 8,500 crore.<\/p>\n Handling the chip supply chain thus holds the key.<\/p>\n Tata Motors, a leading SUV player, has said it continued to be “agile” and was monitoring situation.<\/p>\n Shailesh Chandra, managing director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, said on April 1: “We continue to stay agile, carefully monitoring the supply situation, particularly semiconductors and any potential waves of Covid.”<\/p>\n Chandra said the growth rate of the passenger vehicle industry might moderate due to a strong base effect as well as macro factors including hardening interest rates, rising inflation, and the cost impact from progressive regulatory norms.<\/p>\n Similarly, a senior official of Hyundai Motor India said the company was maintaining a “cautious optimism”.<\/p>\n The company had registered its highest ever domestic sales of 568,000 units in 2022-23, posting an 18 per cent growth rate over the previous financial year.<\/p>\n The South Korean carmaker had exported 153,019 units in FY23, up from 129,260 units in 2021-22.<\/p>\n Therefore, after sailing high on demand and some normalisation in the availability of chips, FY24 is likely to be more challenging for automakers on several grounds.<\/p>\n Analysts at Motilal Oswal put it: “There has been some moderation in enquiries led by muted demand during ongoing festivals and persistent weakness in the rural market.<\/p>\n “Moreover, rising interest rates have further hampered bookings for low-end models.”<\/p>\n Passenger-vehicle production in April-February FY23 was more than 4 million units, up 27 per cent over the same period in the previous year.<\/p>\n