Coronavirus may disrupt production cycle of auto companies: Report

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India's automotive industry is likely to bear the brunt of the recent outbreak of coronavirus (COVID-19) across China and neighbouring countries in South-East Asia.

The Indian auto industry is dependent on imports from China and also from countries that depend on Chinese companies for raw materials and the coronavirus outbreak is set to have an adverse impact on the sector, ICRA said.

Domestic original equipment manufacturers (OEM) source critical components and sub-components including fuel injection pumps, EGR modules, electronic components, turbo chargers from these markets, which in turn directly or indirectly depend on China.

"Since China accounts for 27 percent of India's auto component imports valued at $4.8 billion, India’s automotive supply chain could get disrupted if the manufacturing activities in China continue to remain impacted owing to coronavirus outbreak. The impact is estimated to be higher for high value-add and customized components, while commoditised products could shift to alternative suppliers. But high investments and gestation period involved in developing tooling remains the key prohibitive factor for an immediate shift to new suppliers," said Shamsher Dewan, Vice President - Corporate Sector Ratings, ICRA.

OEMs sourcing components like electronic components, EGR modules, fuel injection pumps, turbo charger, meter sets, LEDs, magnets, airbag components, steering system components and electric vehicle components will be affected most – in particular the impact will be more profound on commercial vehicle (CV), passenger vehicle (PV) and the two-wheeler (2W) segments.

While tractor segment which has high localisation levels with limited dependence on imports will have much lesser impact, the report added.

Typically, companies maintain a 4-6 weeks of inventory, given the stock-up done prior to the Chinese New Year. However, if the situation in China were to persist for another couple of weeks, potential supply disruptions will become more likely.

"Moreover, given that OEMs are currently in the period of transitioning to BS-VI production, disruption in supply of critical components required for the same has the potential to impact smooth transition to new emission norms," added Dewan.