The Russian-Ukrainian war will dry up the supply of semiconductors to car manufacturers


The Russian-Ukrainian war has dried up the availability of semiconductor raw materials with added strain due to the ramp-up in production of defense goods by Ukraine’s allies, such as missile systems that rely heavily on such chips. .

As a result, global semiconductor supply deteriorated in the last quarter, causing automakers to lose production, followed by minimal supply visibility in the coming months.

According to April production figures, Maruti Suzuki and Suzuki Motor Gujarat operated at 84% of their installed production capacity. Last year, Maruti Suzuki lost 270,000 units due to production-related shortages.

With approximately 43,000 units, Tata Motors is operating above 100% plant utilization based on its installed capacity of 480,000 units per year. The company adds that it can increase production by an additional 20-25% through debottlenecking and loosening supply chains.

At the end of April, Bajaj Auto, the country’s second-largest two-wheeler manufacturer, saw the plant’s utilization rate drop to less than 60%. Its March quarter production was 10-15% lower than expected due to supply chain bottlenecks.

The United States and European countries are ramping up production of critical defense systems after supplying such weapons to Ukraine. Although these chips are far more advanced than the other chips powering laptops and cars, an increase in their production puts pressure on raw materials in general. These chips rely heavily on rare gas and metals supplied by Ukraine and Russia.

Sanjay Gupta, Indian Vice President and General Manager of NXP Semiconductors, said, “Every country tries to protect its borders. It’s natural to assume that if they increase defense spending and today, like automobiles, defense depends on semiconductors, in general the demand for semiconductors will increase. Defense sector chips must be very high-level, sophisticated and confidential projects.

NXP is one of the largest semiconductor manufacturers in the world and claims to have a leading position in the Indian market.

Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, said: “We try to get as much visibility as possible by interacting directly with Tier 2 suppliers, but often the ongoing momentum, the whole of the automotive industry stays away from that. It is very clear that there is certainly some impact of the geopolitical situation on a global scale. We depend on Russia and Ukraine for neon gas and some precious metals. We are seeing greater uncertainty in semiconductors this quarter compared to last quarter. »

Material supply reached

Materials supply chain consulting services firm Techcet said Ukraine supplies more than 90% of the US’s semiconductor-grade neon gas, while Russia supplies 35% of US palladium. , a rare metal used for the production of semiconductors.

Apart from an increase in chip prices, the waiting time has also increased significantly over the past few weeks. For example, the Bengaluru-based electronics component maker Pricol saw overall chip prices increase by 25% in three months.

“Delivery times reached 52 to 54 weeks. We are losing sales. The escalation in chip prices has been quite steep, increasing by 25%, including logistics costs, in the last quarter itself,” said Siddharth Manoharan, Director and Chief Strategy Officer at Pricol.

In addition to ordering chips from suppliers, automakers have been looking for alternatives, including buying chips from open markets at higher rates, reducing the number of chips used per vehicle, and offering more intelligent for the features offered. Yet automakers are struggling to avoid production losses.

Bajaj Auto, for example, forecasts a 15-20% production shortfall in the first quarter of FY23 due to chip shortages. Automotive market leader Maruti Suzuki said its production will remain affected in the current quarter.

Published on

May 08, 2022

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