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Explained | Why carmakers are worried about shortage of semiconductors and other questions answered

While carmaker claim to have reached localisation, semiconductors are some of the crucial parts going in a car that are not yet fully localised.

January 18, 2021 / 01:12 PM IST
The logo of Taiwan Semiconductor Manufacturing Company (TSMC) is seen during an investors' conference in Taipei, Taiwan April 13, 2017. REUTERS/Tyrone Siu - RC16D3CD5CE0

The logo of Taiwan Semiconductor Manufacturing Company (TSMC) is seen during an investors' conference in Taipei, Taiwan April 13, 2017. REUTERS/Tyrone Siu - RC16D3CD5CE0

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The semiconductor shortage that has hit automakers in several countries is now disrupting the production plans of automakers in India as well. Ford India has decided to extend the four-day shutdown of its Chennai plant by another week to reopen on January 25. Ford blamed the extended shutdown on shortage of semiconductors.

The shortage in India was felt as early as the first week of December when SUV-specialist Mahindra & Mahindra warned of suboptimal production in the March quarter following a drop in supplies from Bosch, one of the top semiconductor suppliers in India.

The Society of Indian Automotive Manufacturers (SIAM) and the Auto Component Manufacturers Association (ACMA) have warned that if the shortfall remains unresolved, it could damage demand recovery that began in September, forcing several carmakers to push their factories to full capacity production.

What are semiconductors?

Cars these days are vastly different from what was offer even 10 years ago. Car-making has acquired a definitive tech edge, with seamless connectivity and safety features being incorporated in new vehicles.

The air-conditioning feature, for instance, can now be remotely switched on even if the car has no occupants. The vehicle can alert the driver on her mobile phone, if it has left a geographical fencing created by the owner.

Semiconductors are the chips that control these and more such critical commands. Airbags, driver information, audio/video entertainment, capturing data with sensors, managing electrical and mechanical activities, navigation, collision detection system are among the many solutions managed by a semiconductor.

Denso, Continental, Delphi, Nvidia and NXP Semiconductor are some of the global manufacturers and suppliers of the chips are integral to car manufacturing . While manufacturers like M&M source their semiconductor in India from Bosch, others like Honda, Toyota, Hyundai, Daimler, Volkswagen, Nissan and Tata Motors have a captive arm that makes semiconductors.

Why the shortage?

Bosch blamed the shortage of the vital component to growing global demand to make machines that look into safety and hygiene against COVID-19. The company also said the switchover to 5G technology was also responsible for the shortage of microprocessors. Bosch imports components to India before supplying the finished product to its clients.

While carmakers claim to have reached localisation level north of 90 percent in India, semiconductors are some of the crucial parts that are not yet fully localised.

Computers and servers are the largest consumers of semiconductors followed by the wireless communication industry. Industrial and consumer electronics are the next big user of semiconductors. The automotive sector stood fifth in the ranking, as per a Mckinsey study. Hybrid and electric vehicles make more use of semiconductors than combustion-engine vehicles.

While the hard lockdown brought worldwide automotive manufacturing to its knees, China was able to resurrect production faster than expected, leading to the shortage in semiconductors across the world, as per international reports.

Not everyone is as badly hit 

While carmakers like Toyota, Ford and Fiat Chrysler are shutting factories in the US and Europe, others like Volkswagen and Nissan are slowing down production. However, the situation isn’t as bad in India.

Production of Maruti Suzuki and Hyundai in India has not been affected by the shortage of semiconductors, so far. A senior Tata Motors official also confirmed at the launch of the Altroz i-Turbo that its production was on track.
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Swaraj Baggonkar
first published: Jan 18, 2021 01:12 pm