Semiconductor Shortage And The Automotive Industry

A word or two about the persisting semiconductor shortage

It has been a while since the automotive industry started to cripple under severe semiconductor shortage. Semiconductors are used in many automobile parts like powertrain, chassis, safety, infotainment and driver assistance equipment, etc. Asian countries are the major suppliers of semiconductor chips. Due to the pikes in COVID 19 cases and the associated travel and logistics restrictions, semiconductor chips are witnessing serious supply shortages and subsequently upward shoots in prices.

Chips now have high lead times. It currently takes 36-40 weeks from ordering the chips to getting these delivered. Previously this used to be in the 8-12 weeks range. The demand, on the other hand, is increasing day by day. These two clubbed, essentially means the prices of semiconductors are shooting up on an unprecedented scale. Earlier, it was once every 3 months that the prices were revised.

Varied Impact On The Automotive Industry

Semiconductor supply limitations have varied impacts on the automotive industry, as the usage of these varies with make, models, and vehicle segments. It is the passenger vehicles that use the highest amount of semiconductors in them, the four-wheelers overriding the 2 wheelers by fair margins. The premium and luxury vehicle range uses more chips than mass-market cars, owing to more electronics onboard. EVs make extensive use of semiconductors as well. To quote numbers, a mass-market car would have $40-50 worth of chips in it, whereas a premium car or an EV would have it in the $450-500 range.

Due to chip shortages, new product launches are being pushed forward. Also due to the high chip prices, vehicles these days are witnessing high upward price revisions as well.

Road Ahead

Industry insiders reveal that the chip shortages will continue to persist in the immediate future. The industry will witness semiconductor supply issues in Q2/Q3 FY22 as well. The shortage will apparently decrease in a phased manner and the lead time is expected to come down to the normal 8-12 weeks figures by end of FY23. Thus, the production and dispatches will continue to be affected in the near future and could curb FY22 volumes too. Larger OEMs would have stronger rates of recovery, due to their higher negotiating power with the suppliers.

In the Indian scenario, the major suppliers of semiconductors are companies like Arrow Electronics, Millennium Semiconductors, etc. The gestation period here could go up to 2 years. Insiders are expecting a gradual recovery here.

*Featured image is for representative purpose

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