After wading through the pandemic-induced semiconductor shortage that led to significant cuts in vehicle production, the automotive industry might see some challenges in chip supply with the automakers accelerating their plans to launch many electric vehicle models in the market starting next year.
Electric passenger vehicles uses almost twice as many chips as traditional internal combustion engine vehicles. Electrification of passenger vehicles in India, the third largest market in the world, has been a mixed bag till now but is expected to pick up pace from next year with several new mass-market models from domestic and global players expected to hit the market in 2025.
“It is predicted in the group that probably next year 2025-2026, we may have a little bit similar situation (chip supply disruption) because of a lot of electric models getting launched,” said Sachin Kulkarni, executive director and member of board for procurement and advanced supply chain at Skoda Auto Volkswagen India Pvt Ltd.
The chip shortage caused by the pandemic crippled vehicle production and sales. Though the supply has improved significantly, the industry is not completely out of the crisis. Kulkarni noted that the company had to shed millions during the previous chip supply disruption as chip prices spiked with demand outstripping supply.
“When we are predicting this, we should be well prepared now in terms of taking lessons from what we have seen (supply chain disruptions from pandemic and geopolitical issues),” Kulkarni said, adding that it is important to have multiple suppliers. He was speaking at the annual conclave of the Automotive Tyre Manufacturers’ Association.
The automobile industry is the second largest consumer of chips after the computer and communication equipment segment. A recent report from CRISIL Ratings said passenger vehicles consume around 1,500 chips on average with vehicles with advanced electronic features requiring more.
Autocar Professional has earlier reported that Volkswagen Group is considering an entry-level electric vehicle that would be made in India, specifically to cater to domestic needs and exports. Other major automakers including Maruti Suzuki, Hyundai Motors, Tata Motors, and Mahindra & Mahindra are also set to launch a slew of electric models towards the end of this year or early next year.
India is currently heavily reliant on imports to meet its chip demand. The government and private players are working to reduce the dependence on imports for chips through initiatives like the Semiconductor Mission Program, under which it offers incentives worth US$ 10 billion to set up a semiconductor ecosystem in the country. Companies like Micron and Simmtech Holding have announced their plans to set up semiconductor facilities in India, while Tata Group also has plans for a semiconductor fabrication plant.