Semiconductor Shortage Challenge To Gradually Improve By 2022 – Grant Thorton Bharat Report

Grant Thornton Bharat has released their quarterly report,  The Auto Track Q2FY22, on the activities in the Auto Sector during the second quarter of the current financial year. The key highlights of the report are as follows,

Highlights 

• High vehicle prices (on the back of increased commodity prices) may not reinstate until 2023.
• 12 key components have been identified with localisation potential, seeking to cut imports by 15-20% or INR 34,400 crore over a period of five years.
• The semiconductor shortage has resulted in an increased lead-time from six weeks in July to a record high of 21 weeks in August.
• Semiconductor shortage expected to improve gradually by 2022.
• Japan has emerged as an enabling force in key nation building initiatives with India aspiring to be a leading power in a multipolar world, sourcing technology, investments, and development assistance to modernise its economic foundation.

As automakers globally move to clean connected vehicles, there is a need for the component industry to enhance its focus, investments, research, and development on all clean powertrain technologies. For this, many multi-national organizations are adding new operations in developing Asian countries like India, Vietnam, Thailand, Bangladesh, and Malaysia, remaining open to other new manufacturing opportunities.

Saket Mehra, Partner and Automotive Sector Leader, Grant Thornton Bharat says, “India is expected to benefit from its competitive advantage and low-cost manufacturing facilities. We need to make a successful transition to high technology and value-added products, which will act as an important growth driver. Overall, we see a successful transition where the industry would accomplish several notable trendlines this year and in the coming decade.

India, Mexico and Vietnam are undertaking initiatives and implementing policies that will facilitate their emergence as the new hub for manufacturing. From increasing adoption of technology to relaxation of FDI norms, implementation of reforms in land acquisition, countries are now steadily catching up with the alternative sourcing giants in the world

In the light of ‘China plus one’ strategy for India, auto and auto component industries could work together in developing technologies and take advantage of the global market while leaving imprints on the global value chain. In order to develop India as a sourcing hub; the domestic industry needs to move as close as possible to ‘Carbon Net Zero’ with local manufacturing.

Favourable factors of production towards a strong business ecosystem

• Increased value addition
• De-risk local manufacturing
• Investment in innovative technology
• Conducive business environment
• Incentivising government policies

Apart from this, the chip shortage has currently created a ripple effect while impacting businesses across the value chain as OEMs and their supplier's scout for chip sources. Both the auto players and the semiconductor manufacturers need to align their short and long-term strategies to overcome this supply-chain disruption. By next year, the shortage is likely to improve gradually.