India’s carmakers are now facing an unenviable situation. They have to cut back on production due to chip shortages, while the demand for cars is expected to reach an annual peak during the October-December festive season.
The country’s top carmaker, Maruti Suzuki, says that it will be able to operate its plants at 60% of its total capacity in October, as they don’t have enough semiconductors.
In a regulatory filing, Suzuki’s Indian unit said that its Haryana plant and its contract manufacturing company, Suzuki Motor Gujarat Private, will see production curbs in October.
In August, it had announced that it wouldbe able to manufacture only 40% of its total capacity at all its plants in the month of September.
Cars have become increasingly dependent on chips – for everything from computer management of engines for better fuel economy to driver-assistance features such as emergency braking. The carmakers were forced to shut down plants last year due to the Covid-19 pandemic, but they now face increasing competition from the consumer electronics industry for chip deliveries.
That problem has been compounded by a series of supply chain disruptions during the pandemic. For Maruti Suzuki, Bosch is a major supplier of semiconductors and it had to shut down its plant in Malaysia due to a surge in coronavirus cases.
Maruti Suzuki’s rival Mahindra and Mahindra had also warned of a hit to its production for September due to chip shortage.
This will further aggravate the prevailing supply hurdle during the festive season. Waiting periods for some models are already very long and as the list of vehicle bookings lengthens, the waiting periods will grow longer.
Because of this situation, carmakers could end up incurring losses during the crucial festive season. The waiting period for most basic car models is more than 1.5 months at the moment and could extend up to 7 months for models in demand.
This will force automakers to sell lower numbers of vehicles compared with demand. Dealers too will be reluctant to offer any discounts or freebies.