Chip shortage hits vehicle sales amid strong demand in festive season

Vehicle manufacturers too are facing issues in production due to shortage of semiconductor chips in the market, with sales crashing around 40% during the festive season despite good demand post the pandemic.

The production of semiconductor chips — which are used to power electrical and electronic components in a vehicle, including infotainment and driver aid systems — has been hit by a spurt in demand for personal computers and smartphones in the wake of the Covid-19 pandemic.

The poor supply of chips has resulted in a 41% crash in sales of passenger vehicles in September in India compared to the same month last year.

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While the number of passenger vehicles sold reduced to 160,070 units last month, only 1.5 million two wheelers were sold in the same period as against 1.8 million in September 2020.

Maruti Suzuki, which makes Swift and other cars, has announced production cuts as a result of the chip shortage in September and had rolled out only 81,278 units last month as against 1,66,086 in September 2020.

“While on the one hand, we are seeing a revival in vehicle demand, on the other hand, shortage of semi-conductor chips is causing a major concern for the industry,” Kenichi Ayukawa, MD and CEO of Maruti Suzuki India Limited, said.

Mahindra and Mahindra too has reduced its production while demand for some of its models, such as the Thar and XUV700, remains robust.

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Global carmakers such as Toyota and Ford too have slashed their production sharply due to the chip crisis. While the US-based Ford shut its plants in India, Japanese Toyota has been sourcing chips from alternative sources amid the slowdown.

Several other vehicle makers are finding it difficult to meet the demand due to the shortage of chips. With manufacturers slashing production even in October, the vehicle market is likely to remain subdued even as demand remains strong.

Analysts at IHS Markit have said that the chip crisis will continue till the September next year, even as demand rises for vehicles, especially personal vehicles.