Ukraine crisis: Chip shortage to hit automakers hard

Bengaluru, 12 March The ongoing Russia-Ukraine conflict is likely to further aggravate the chip shortage situation in India with no near-term solution in sight.

Both Russia and Ukraine supply raw materials used in semiconductor manufacturing and the ongoing conflict creates serious disruption to the supply chain. It is likely to result in further delay in streamlining the demand-supply situation.

According to analysts, the resulting impact will be more on automobile sectors. Though there are many user industries including electronics, telecommunication and many more for the chips, the world has seen most adverse impact on automakers due to specialised nature of the chips. Therefore, consumers are likely to wait more time for getting the delivery of their vehicles. Also, OEMs are expected to increase the price of components till the alternative sourcing arrangements are being done.

The auto industry has battled a crippling chip shortage last year with rating agency ICRA estimating that half a million units of sale were lost due to this shortage. Customers have to wait for more than six months for getting the delivery of popular models.

This global demand-supply mismatch emanates from events during the pandemic period. Due to the pandemic, the demand saw a drastic change as countries went under varying lockdowns to check the spread of the virus, and work from home became a norm. This led to an explosive rise in sales of tablets, personal computers, and mobile handsets.

As most of the existing semiconductor supply gets absorbed by these businesses, other industries such as automobile, mining, and gaming started facing a supply crunch since the end of 2020.

To ease the supply situation, many countries have embarked upon the path of increasing chip manufacturing. India has announced manufacturing-linked incentive schemes to boost domestic manufacturing of chips.

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