Indian auto industry, along with its global peers, continues to face issues in the supply of semi-conductors. In fact, commenting on auto sales and registrations during February, two prominent industry bodies highlighted the issue of unavailability of semi-conductors. Ratings agency CRISIL, however, feels the shortfall in semi-conductors would remain till the first quarter of FY2022 before the supply is normalised.
According to data from the Society of Indian Automobile Manufacturers (SIAM) while the sales numbers in February are encouraging, on a cumulative basis, there is a decline. Between April 2020 and February 2021, total 161,42,637 units were sold compared with 197,65,500 units sold in the same period a year ago, it says.
Commenting on the February 2021 data, Rajesh Menon, director general of SIAM says, "Supply chain challenges including rising price of steel, unavailability of semi-conductors and higher container charges, continue to be obstacles in smooth functioning of the industry."
The Federation of Automobile Dealers Associations (FADA), however says, non-availability of vehicles due to scarcity of semiconductors took its toll on automobile registrations in India during February. While the shortage of semiconductors has led to an increase in waiting period for passenger vehicles (PVs) to eight months, almost 50% of the dealer-members have lost over 20% sales due to non-availability of vehicles, it says.
CRISIL, however, feels that the shortfall situation in semi-conductor availability is likely to persist until at least the first quarter of fiscal 2022 and then normalise. Assuming the same, demand for automobiles is therefore not expected to be substantially impacted in fiscal 2022, though there could be some shift in demand to later parts of the fiscal, says Anuj Sethi, senior director of CRISIL Ratings.
Semi-conductors are used in microprocessors, which are essential for the electronic control unit (ECU) and are more prevalent in passenger vehicles (PV), compared to other vehicles. Owing to the surge in demand from the Chinese passenger vehicle (PV) industry (about 10%-12%increase in April to December 2020), the ratings agency says, higher demand for consumer electronic industry and Covid-19 led supply chain disruptions, there has been a shortage of microprocessors in the market as indicated by sources.
According to Mr Sethi, shortage of micro-processors has impacted production of some PV original equipment manufacturers (OEMs) more than others. He says, "The extent of impact depends on PV OEM's product portfolio as well as supply chain robustness. Automotive production in India, till now, is impacted to a certain extent by the shortage of supply of semiconductors resulting in higher waiting periods for specific models."
Further, CRISIL says, a significant portion of growth in fiscal 2022 is driven by higher contribution from the first quarter as sales had been hit significantly in Q1 FY20 due to the pandemic-led lockdown; with mid-single digit growth in the rest of the quarters. Accordingly, volumes are expected to be better in fiscal 2022, it added.
While publishing registration figures for February, FADA has mentioned negative impact of increasing fuel prices on two-wheeler and commercial vehicle (CV) sales.
FADA also mentioned that fuel consumption, which had almost recovered from the lows of pandemic, is once again witnessing headwinds due to historic price hikes. Vinkesh Gulati, president of FADA says, "Fuel prices are at its historic high and has put a dampener in sentiments. This in-turn has pressed brake on sale of entry level price sensitive category."
"Consumer spending, which is the driving force behind India’s economy and accounting for 60% of the gross domestic product (GDP), fell 2.4% showing signs of sluggishness despite the quarter being in the festive season. This also reflects that consumers are still uncertain and worried about their income and cautious about spending," the apex body of automobile retail industry says.
Commenting on the impact of increasing fuel prices and higher ownership cost on auto sales, Pushan Sharma, associate director of CRISIL Research, says, "The average hike in petrol prices of Rs8 in fiscal 2021 should have resulted in a rise in cost of ownership for PVs and two wheelers by 2.3% points and 3% points respectively, albeit keeping all other factors constant.
However, overall increase in cost of ownership, this fiscal, was 3% and 10% on-year for PVs and two-wheelers, respectively."
"This is due to lower finance outgo for PVs with about 110 basis points (bps) fall in PV interest rates compared with January 2020 and a modest 2-4% vehicle price hike in this fiscal. For two wheelers, rise in cost of ownership has been higher despite lower interest cost as OEMs have increased vehicle prices by 10-15% mainly due to BS-VI norm," he added.
According to the ratings agency, supply constraints have impacted fuel prices in the fourth quarter of fiscal 2021 and the scenario may remain grim for another quarter before prices correct downward in the second half of fiscal 2022.
CRISIL Research says it believes crude oil prices would average $55-$60 next fiscal, about 36% higher than fiscal 2021. "Interest rates are expected to remain moderate next fiscal whereas vehicle prices are expected to see a modest 3-4% rise, given that most commodity prices - steel, aluminium and natural rubber - are expected to increase by 2-14% next fiscal. This will in turn increase the cost of ownership by 3-4% in the next fiscal for the two vehicle segments," it added.