Auto volume growth may decline by 13% owing to chip shortage: Report

The ongoing chip shortage is likely to moderate passenger vehicle sales growth to 11 to 13% this fiscal, which is down from the earlier volume growth forecast of 16 to 17%, says a research report by Crisil. This has delayed the industry recovery as the waiting period is increasing amid strong demand due to production curbs. The shortage for semiconductors will lead to a fall of 400 to 600 basis points in sales from 16 to 17% to 11 to 13%, according to the Crisil analysis of the top three passenger vehicles companies which has a combined market share of 71%.

Waiting period for customers increased to nine months

As semiconductors and chips facilitate a range of features such as navigation, infotainment and traction control and are considered as key components of a vehicle, and with more premium the usage of chips goes up.

The report said that the shortage has led to production losses for OEMs, while for customers the waiting period has increased from 2 to 3 months to 6 to 9 months

The report  also noted that the pandemic induced uncertainties led to sharp swings in orders by auto companies which account for 10 to 12% of global chip demand, and added that this led to chip makers diverting their supplies towards other sectors like consumer electronics which saw surged significantly in demand, especially during the lockdown months of the pandemic.

It also blamed the shortage to poor inventory planning by OEMs, chip hoarding by Chinese companies, and natural disasters hitting major chip factories apart from the logjams at ports. Preference for mobility has increased, leading to more than expected demand for cars, since the beginning of the pandemic, it added.

Adding to that consumers have also been preferring vehicles with more electronic-driven features which employ more semiconductors, the report said.