New Delhi | Jagran Auto Desk: As the automobile industry has started to overcome the losses it suffered due to the COVID-19 pandemic for the last 2 years, the global shortage of semiconductors has come to haunt the Indian car industry with some of the country's biggest car manufacturers including Maruti Suzuki, Tata, Mahindra & Mahindra showing a shortage of production due to the scarcity of the semiconductor.

Not just the automobile industry, the semiconductor shortage has sent shockwaves through the global economy, squeezing supplies of everything from cars to headphones. The dearth of chips has exposed the modern world's reliance on these minuscule components, the basic building blocks of computers which allow electronic devices to process data.

What are semiconductors?

Semiconductors are silicon chips that cater to control and memory functions in products ranging from automobiles, computers and cellphones to various other electronic items. The usage of semiconductors in the auto industry has gone up globally in recent times with new models coming with more and more electronic features such as Bluetooth connectivity and driver-assist, navigation and hybrid-electric systems. Industry experts feel that enhanced demand for automobiles in the past few months has put pressure on the global supply chains leading to a shortage.

Why is the shortage happening, and what can be done about it?

The start of the Covid-19 crisis in early 2020 prompted a global spending spree on electronic items -- from extra monitors as people rushed to set up home offices, to televisions and games consoles for beating lockdown boredom. Temporary factory closures due to the pandemic also put pressure on supplies.

And as plants reopened, electronic goods producers continued to place orders -- creating an ever-increasing backlog for the chips, which can be just a fraction of a millimetre long. The pandemic isn't the only factor. A storm briefly halted production at several plants in Texas in February, and a fire ripped through a Japanese factory in March.

US-China tensions are also part of the story. Last August, the US banned foreign companies whose chips use American technology from selling to Chinese tech giant Huawei, over espionage allegations. Huawei began stockpiling semiconductors ahead of the sanctions coming into effect, and other companies followed their lead, further straining supplies.

Which industries have been hit?

The car industry has been the most visible victim so far, with many brands forced to slow their output in recent months. As automakers slashed production early in the pandemic, their chip suppliers turned to clients from other sectors -- namely the makers of electronic goods in high demand due to the pandemic.

That has left car brands, from Volkswagen to Volvo, scrambling to get hold of semiconductors now that sales are revving up again. Smartphone makers had been relatively protected so far as they had existing stockpiles of chips, but they too are starting to suffer.

India's largest car manufacturer, Maruti Suzuki has said it expected its total vehicle production in September across its plants in Haryana and parent Suzuki's unit in Gujarat to be just 40 per cent of the normal output due to the semiconductor shortage.

"Owing to a supply constraint of electronic components due to the semiconductor shortage situation, the company is expecting an adverse impact on vehicle production in the month of September in both Haryana and its contract manufacturing company, SMG in Gujarat," MSI said in a regulatory filing.

Another automobile bigwig Tata also flagged production issues due to the shortage of semiconductors. Tata Motors had a growth of 51% in the month on a year-on-year basis, though the company has seen deliveries go down seven per cent on a month-on-month basis due to shortages.

Mahindra & Mahindra also complained of the issue and said that the output at its automotive division will be cut by up to 25 per cent owing to no production days of around seven days across its plants due to semiconductor shortage.

In a regulatory filing, the company said its automotive division continues to face a supply shortage of semiconductors, which further accentuated due to COVID-19 lockdowns in some parts of the world. M&M's automotive division has manufacturing units at Chakan, Nashik, Kandivali, Zaheerabad and Haridwar.

When will this end?

Governments are hurrying to boost their chip-making capacities, meanwhile. In May, South Korea announced a whopping $451 billion investment in its bid to become a semiconductor giant, while the US Senate last month voted through $52 billion in subsidies for chip plants, known as "fabs".

The European Union is seeking to double its share of global chip-manufacturing capacity to 20 per cent of the market by 2030. But factories cannot open overnight -- particularly those that make semiconductors, a delicate process that involves pressing layers of chemicals into silicon.


(With Agencies Inputs)

Posted By: Talibuddin Khan