Semiconductor Chip Shortage – Will it put brakes on India’s growing EV Momentum?

The chip shortage globally since H2 2020 has been driven by chip hoarding by Chinese Companies, poor inventory planning by Original Equipment Manufacturers (OEMs), logjams at ports, major chip factories being hit by natural disasters. Additional factors include COVID restrictions in Malaysia, a key chip assembly hub in the global semiconductor supply chain from where Indian automakers also have been procuring huge semiconductor supplies.

As a result of the severe shortage of semiconductors faced by Tier I and Tier II component suppliers, vehicle manufacturers are facing supply constraints of parts with enhanced infotainment and sensor-based features such as engine electronic control units, ABS Systems, keyless entry, bluetooth connectivity, driver-assist system, navigation, and hybrid-electric systems. The shortage has been faced primarily by passenger vehicle manufacturers and premium bike manufacturers. In India, passenger car OEMs like Tata Motors, Hyundai, M&M etc. and premium bike players like Bajaj, Ather, TVS have been facing the chip supply issue and hence reduced production and increased backlogs for both EV and non-EV offerings.

Tata Motors witnessed a wider loss of Rs. 44.42 billion this quarter (July-Sep 2021) against a loss of Rs. 3.14 billion during July-Sep 2020 in India due to an acute shortage of chips. The waiting period for its electric cars (E-Cars) has gone upto six months while for most other vehicles it is upto two months. EV sales accounted for ~5% of its total car sales in October but the share would have been more than 9% if there were no order backlogs. In the wake of this issue, Tata Motors is prioritising production of its higher margin vehicles first. It is making changes in its product configurations while using different kinds of chips in components witnessing a tight supply. The other automakers as well are now cutting down on the usage of microchips in their vehicles to keep their production lines running. Tata Motors, for instance, is giving only one remote key to the customers at the time of purchase and offering the second one later. Similarly, infotainment systems with touchscreens are being replaced by simpler audio players.

The two-wheeler industry, on the other hand, is not affected much by the chip shortage as electronic items are primarily used in their high-end models. So, when it comes to electric two-wheelers (E2W) as well, premium range vehicles are the ones that have been facing chip supply issues.

  • TVS, for instance, has been witnessing significant order backlog for its electric scooter iQube and owing to the shortages, it has been unable to supply substantial units to the market. In its non-electric two-wheeler segment, the company suffered a production loss of 25,000 units of its premium Apache range of motorcycles during July-Sep 2021 quarter. Though TVS was able to minimise shortage of chips for Apache by adopting some countermeasures like tie-ups with additional sources of chip supply, it is still holding discussions with suppliers for iQube.
  • Similarly, Ather also lost some production owing to chip shortage and the waiting period seem to increase from the current one month
  • Also, Ola Electric has shifted the delivery for the first batch of its electric scooters to the later half of December 2021, leading to a 2-4 week delay from its earlier schedule

A close look into the EV sales in this year reveval that more than 50% of the market is accounted for by electric three-wheelers (E3W), which was followed by high-speed E2Ws at ~44% in India. Add to that, premium bikes account for just a miniscule share in total E2W sales.

Hence the chip shortage in the EV industry only impacts e-cars and premium e-bikes in India. So, the growth momentum of the Indian EV sector, primarily driven by E3W and E2W, is likely to continue barring some minor hiccups.

Fig. 1: Category-wise EV Registrations between January and October 2021

Source: Vahan Dashboard, JMK Research
Note: Sales figures represent EVs registered across 1,357 RTOs in 33 states/ UTs.
Others include adapted vehicles, fork-lifts, goods carriers, and trailer (agriculture) vehicles.

Anyhow, the Indian government is planning to localise the production of semiconductor chips to address the chip shortage issue in the passenger vehicle segment and save money on foreign exchange. In fact, Tata Motors is already thinking about entering the semiconductor segment, manufacturing the critical components in the semiconductor industry. Till this decision is taken, the company plans to buy chips directly from stockists.

The good news is that the month of November has been witnessing some improvements in the supplies of semiconductors and the trend seems to continue in the coming months. However, the situation is expected to be stabilised only after H2 2022.[1]

[1] The New Indian Express, Chip shortage: Crisil, Ind-Ra cut PV industry growth forecasts, October 2021