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Carmakers rev up production as chip shortage subsides

Even as demand shoots through the roof, manufacturers feel full production capacity utilisation is unlikely as they are not confident of the chip supply situation in the future. Long wait times may be around for a little longer.

September 26, 2022 / 06:34 PM IST
Image Credit: Pixabay

Image Credit: Pixabay

With the augmentation of semiconductor supplies to the global automotive industry, carmakers across the board are ramping up production lines in order to cut the prolonged waiting period of their bestselling models.

Leading carmakers such as Maruti Suzuki, Hyundai Motors, Mahindra & Mahindra (M&M), Tata Motors, etc., have confirmed that easing supplies of semiconductor chips is resulting in a gradual increase in output on a month-on-month basis.

Furthermore, as sales remained buoyant in August, most of the companies have enhanced their dispatches ahead of the festive season.

As per ICRA estimates, the industry capacity utilization levels after dipping to ~60% during H1 FY2022, has ramped up to levels of ~80-85% for H1 CY2023. However, it maintained that 100 percent utilization may not be possible in the foreseeable future as the chip shortage may linger on till late next year.

Maruti Suzuki, the country’s largest carmaker, revealed that it was currently operating at more than 96 percent of its installed capacity of 1.85 lakh units per month (including exports). A senior company official confirmed that production has improved due to improved semiconductor supplies.

Shashank Srivastava, senior executive director, marketing & sales, at Maruti Suzuki India Limited (MSIL), recently said that, “In September (last year), the production level was only 40 percent. In October it inched up to 60 percent. The situation gradually continued to improve and we hit production utilization levels of 95 percent in May.”

Asked when the company expects to hit 100 percent utilization, Srivastava added, “We do not have visibility regarding availability of semiconductors in the future. We get updates every week and keep modifying our estimates. One thing I can tell you is that we will not see 100 percent normalization of production in the near future.’’

During a media interaction, the M&M brass said that the “semiconductor crisis is now abated,” and that the prolonged waiting period for its vehicles was largely due to "unprecedented demand".

They added that capacity addition involves lengthy lead times, and the company was looking to significantly ramp up production to cater to the growing demand for its bestselling vehicles — XUV700, Thar, and the recently-launched Scorpio-N.

“The wait time is being driven largely by demand. Capacity will take some time to ramp up, hence the wait times will not drop immediately. So, while the semiconductor situation has eased, it is demand that is driving the wait. We just have to get the capacity in place to address that. However, (in spite of the wait time) we’re not seeing any reduction in demand,” Anish Shah, Managing Director & CEO, M&M, told reporters at a post-results press conference.

Tata Motors, which too is reportedly producing at greater than 90 percent of capacity, maintained that the semiconductor shortage was under control even though not fully resolved. With wait times ranging between four weeks to three months for different passenger vehicles in its portfolio, the company is witnessing fresh demand for its vehicles, and ” pent-up demand” is over.

Shailesh Chandra, managing director, Tata Motors Passenger Vehicles and  and Passenger Electric Mobility  recently revealed that if the demand in the market is ‘X’,  it might be slightly behind that ‘X’ but not 70% of  what  needed earlier.

"The semiconductor situation is easing out, but remains uncertain in the short term. We continue to remain agile and flexible to the evolving situation and apply smart allocation across models to maximize production. We have also developed an alternative architecture for the affected parts, and collaborated with supplier-partners to fast track de-risking measures," said Chandra.

South Korean carmaker Hyundai Motor India, which is churning out 60,000 units (for both domestic and export markets) on an average per month, anticipates record sales this year, largely due to improved supplies and sustained demand for it sport utility vehicles (SUVs) such as Venue, Tucson, Creta, etc. A senior company official said that its domestic sales in 2022 will be the highest ever in the country.

“If you see, in Jan-May we were doing about 43,000-44,000 units a month. Now we are doing 48,000-49,000 units (doesn’t tally with the 60K figure in the para above). Things have improved by 10 percent. With the semiconductor situation improving and robust demand, we are confident that we will achieve the highest-ever domestic sales in history in CY22,” said Tarun Garg, director (sales, marketing, and service), Hyundai Motor India.

 
Avishek Banerjee