Motherson Sumi and Bharat Forge have cautioned that if production does not restart in China in the coming days there will be a direct impact on their operations
The coronavirus (COVID-19) outbreak which has claimed over 1,300 lives in little over a month has disrupted output of Indian automotive companies, however, there has been no shutdown in production yet.
But, Motherson Sumi and Bharat Forge, India’s biggest auto parts suppliers with direct and indirect exposure to China, cautioned that if production in China does not restart in the near future, it will impact their operations.
The segment has been able to hang on as global demand for new vehicles has slowed down the pace of parts procurement - most of which come from China. Also, several automakers and their Level 1 suppliers were carrying multi-week inventory in anticipation of the shutdown of factories due to the Chinese New Year celebrations.
"We have spoken to our customers and everybody in the US and Europe have four to six weeks of inventory. So as long as the plants start producing again within four to six weeks there should not be a major impact on the global automotive production," Amit Kalyani, Deputy Managing Director of Bharat Forge said.
Kalyani was speaking to analysts post the announcement of the company's December quarter (Q3) results.
Motherson Sumi, the Delhi-based auto parts heavyweight, on the other hand, has 14 subsidiary companies controlling multiple factories in China as of the previous financial year. So far none of its factories has shuttered due to the virus outbreak, senior executives of the company informed.
"Some suppliers have issued force majeure letters in North America and in some other regions, but that was because they didn't know if their plants will really open on February 10," Pankaj K Mital, Motherson Sumi Systems, COO & Whole-Time Director said.
"Some plants in China have opened and are being monitored by the original equipment manufacturers (OEMs) because they have a few Tier 2 and 3 supply bases, and raw materials or electronic parts coming in overall. So yes, they have given notices to the OEMs. Motherson has not got any," Mital added.
The joint venture between Tata Motors' luxury brand Jaguar Land Rover (JLR) and Chery Automobiles, which runs an assembly plant in China has decided to delay re-opening it after it was shut for New Year celebrations. But not before warning that the epidemic will disrupt global supply chains.
"Close to 30 percent of the global supply chain for manufactured goods comes out of China and about 20 percent of manufactured goods are purchased by China. A 30-45 day stop makes quite a big impact," Kalyani noted.
Home-grown utility vehicle specialist Mahindra & Mahindra (M&M) has also warned about the need for appealing to the Supreme Court (SC) seeking an extension of the deadline to exhaust the soon-to-be outdated Bharat Stage IV (BS-IV) stock if production is not restored in China at the earliest.M&M imports a critical component - the electronic control unit (ECU) from China. If ECU supplies remain disrupted M&M will be saddled with an unliquidated inventory of 3,000 BS-IV vehicles ahead of the April 1 deadline for implementation of new BS-VI norms.
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