Semiconductor shortage may ease from January 2022

“We believe Q2 and Q3 are going to be pretty difficult,” says a parts manufacturer. OEMs are now in talks with semiconductor makers, and even signing contracts for chips, which will be delivered 12 months later

 SWARAJ BAGGONKAR

SEPTEMBER 24, 2021 / 01:18 PM IST

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Semiconductor shortage issues, which have crippled automotive production, will start easing from January onwards and stabilise by the same time next year, some of the top auto parts suppliers said.

These chips, which help deploy airbags, control entertainment units and power backup cameras, have started to witness some price stabilisation already. Expectations are that, by September 2022, their costs would go back to the October-November level of 2020.

“From January 2021, the problem only got worse. Right now, probably, we are at the peak, in terms of shortages and loss of production. We believe Q2 and Q3 are going to be pretty difficult for the industry. We believe, from January, the pressure will ease off a little bit with further easing happening in August-September next year,” said Vikram Mohan, Managing Director, Pricol, a Coimbatore-based Tier 1 parts manufacturer.

Pricol supplies semiconductor-powered electronic units, such as telematics and instrument clusters, to two- and four-wheeler manufacturers. About 45 percent of the company’s turnover is dependent on such components.

‘Some price stabilisation now’

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“We have been engaging with semiconductor makers. There is a lot more visibility of supplies now, compared to a few weeks ago. There is also some price stabilisation (on semiconductors), which was otherwise heading north since January,” a Delhi-based electronic component manufacturer added.

With demand hitting the roof and supplies getting limited, prices of chips have jumped multi-fold. According to Tier-1 suppliers, prices of semiconductors have gone up by 200-1,500 percent, compared to the pre-COVID levels.

“The final customer has absorbed 30-35 percent of the cost; the OEMs (vehicle makers) have absorbed 35-40 and we have absorbed the rest,” Mohan added.

Vehicle makers slash production

The chip shortage has forced Maruti Suzuki and its sister concern, Suzuki Motor Gujarat, to slash production at each of its three factories in September, bringing down output by 60 percent.

Utility vehicle-specialist Mahindra & Mahindra (M&M) will produce 20-25 percent less than planned in September. Tata Motors also spoke about moderation in production and offtake volumes in the coming months.

Veejay Nakra, CEO, Automotive Division, M&M, said: “Owing to COVID-19 and the capacity constraints around semiconductors, the automotive industry worldwide is impacted. While the industry is working relentlessly to address the issue, we anticipate its impact for a longer duration. At M&M, we are finding credible and innovative methods to address the challenge on priority.”

To mitigate the chip supply issue, which has also hit the makers of two-wheelers, commercial vehicles and electric vehicles, manufacturers are changing their model mix by giving priority of production to those models which are in high demand.

In addition, OEMs are holding direct talks with semiconductor makers to get better visibility on supplies. OEMs are even signing supply contracts for chips which will be delivered 12 months later.

The automotive sector makes up just 6-8 percent of the global demand pie for semiconductors. Laptops, cell phones, medical equipment, telecommunications equipment, industrial, military and aerospace and white goods segments make up for the rest.