The global shortage of semiconductors, or chips, which had rattled automobile production and sales in India through fiscals 2021 and 2022 and a large part of fiscal 2023, is easing, with supply-chain glitches being addressed and improved predictive demand forecast enabling better production schedules, said a report by CRISIL.
Demand-supply dynamics are expected to be more balanced by fiscal 2026, with additional global manufacturing capacities set to become operational, said the report.
Chips possess distinct electrical properties that make them the cornerstone of all electronic equipment and devices. Broadly, the computer and communication equipment (C&C) segment consumes approximately 63 per cent of chips produced, followed by automobiles (13 per cent), and consumer and industrial segments (12 per cent).
Passenger vehicles (PVs) consume approximately 1,500 chips on average, the highest among all automobile types. The chip requirement increases as more advanced electronic features are incorporated. Electric PVs use almost twice as many chips as internal combustion engine (ICE) PVs.
Lately, improving supply and slowing demand for computers and mobile phones has led to reallocation of chip supplies for other segments, particularly automobiles.
“The chip shortage faced by Indian passenger vehicle makers is easing, with current availability at 85-90% of total requirement. The production loss on account of the chip shortage, which had halved to approximately 3,00,000 PVs on-year in fiscal 2023, is estimated to have further declined to under 2,00,000 PVs by the end of September 2023,” said Says Anuj Sethi, Senior Director, CRISIL Ratings.
For the record, though most PV makers are currently operating at near optimal capacity utilisation due to stronger-than-anticipated demand, new orders to be serviced remains high at approximately 700,000 at the end of September 2023, despite chip availability easing considerably, according to the report.
Earlier, global automobile demand, severely impacted by the Covid-19 pandemic, made a strong recovery in the latter part of fiscal 2022, catching automobile manufacturers off guard as they had not placed substantial orders for chips.
By then, production lines had been prioritised for the C&C segment, where demand had surged for personal computers, laptops, and mobile phones, driven by work from home, virtual learning, and remote healthcare services.
Geographically, the chip ecosystem is skewed, with western nations dominating chip architecture, design, manufacturing equipment, specialised materials, and chemicals. However, semiconductor fabs1 are concentrated in eastern nations, such as Taiwan and South Korea.
Given the criticality of chips in the defence and aerospace industries, the United States and the European Union have offered incentives of approximately $100 billion for localisation of semiconductor fabs. As a result, many global players are slated to spend approximately $360 billion towards setting up new facilities, which are set to become operational by fiscal 2026. This will then ensure more balanced chip supply across countries.
In the Indian context, demand for chips will continue to increase over the medium term, driven by the gradual rise in EV adoption and growing demand for advanced feature-laden ICE vehicles.
“India currently meets its chip demand through imports. The government has allocated approximately $10 billion for development of the semiconductor ecosystem in a bid to cater to rising demand and reduce import dependence. This includes offering incentives of up to 50% of the project cost to support establishment of foundries. That said, given India’s nascence in the field, successful joint ventures with established global players and commissioning of facilities,” said Naren Kartic K, Associate ..
Cre: The Economic Times
