Auto industry expects smooth ride, but Omicron could be a speed breaker

The Indian auto industry expects continued healthy demand as well as an easing of semiconductor supply issues over the coming year.

However, speed brakes such as the third wave of Covid triggered by the spread of the Omicron variant in India as well as rising commodity prices could slow the industry’s recovery.

“The auto industry is hopeful that Omicron’s new variant of Covid-19 will not play a major turmoil. We hope that once the semiconductor crisis subsides, the industry can continue to experience strong demand. and do better in 2022, ”Rajesh said. Menon, Managing Director, Company of Indian Automobile Manufacturers (SIAM).

“The industry hopes that favorable government policies, for example the PLI programs for the automotive and automotive components sector, the advanced chemistry cell, the extension of the FAME-II program until 2024 and the Announcing a PLI program of Rs 76,000 crore for semiconductor manufacturing will provide the much-needed boost to the industry. “

Lately, rising commodity prices have pushed up auto prices.

Likewise, the semiconductor shortage has prolonged the waiting period as well as the escalation of prices.

Today, semiconductors play an essential role in the production of internal combustion engines. They are an integral part of all kinds of sensors and controls in any vehicle.

“We see 2022 as a neutral year, as Omicron’s rise to power has created fear in the world again,” said Vinkesh Gulati, president of the Federation of Automobile Dealers Associations (FADA).

“This may have an additional impact on the supply in passenger vehicles if the chip-producing countries are blocked or prioritize the manufacture of chips for electronics used for ‘work from home’.

In addition, Gulati said the two-wheeler market, which continues to face headwinds in demand, could further collapse if the third wave becomes a reality.

“We anticipate that the second half of CY 2022 could see supply as well as demand slowly return to normal. As previously mentioned, the auto industry may not fully recover until 2023 and return to its levels of before covid if covid becomes a story. “

Currently, the industry fears the advent of a third wave of Covid-19 triggered via the Omicron variant.

“Overall, the auto industry is expected to be doing better than in FY21 as we will likely see continued production throughout the year with no downtime provided Omicron is not very tough and that there are no localized blockages, ”said Hemal Thakkar, director of Crisil Research.

“Additionally, semiconductor shortages are easing from earlier, but will continue to persist through 2022.”

Additionally, Thakkar said the momentum from the electric vehicle side would be “better” with players wanting to invest in battery cells and vehicles due to the PLI released by the Center, which will facilitate ecosystem growth and demand side incentives under “FAME II” and state policies.

On the semiconductor crisis, Shamsher Dewan, Vice President & Group Leader of ICRA said, “Standardization of the supply chain will likely only be achieved within the next 12-18 months, as new capacities are brought into service. “

“Major global value chain players have indicated that production deficits will continue for much of 2022; supplies are only expected to return to normal levels by the first quarter of CY2023. “

Additionally, Dewan said OEMs will continue to invest in new product development, with significant investments in new technologies, such as electric vehicles (EVs).

“Within the various automotive segments, the 2W segment is expected to be at the forefront of India’s automotive electrification campaign, with the EV policy environment becoming favorable for the segment.”

“Significant financial incentives are offered to e2Ws under the centre’s FAME-II program and certain national policies for electric vehicles; the same has dramatically shifted the total cost of ownership (TCO) in favor of electric vehicles and resulted in increased demand for the segment. over the past few months. “

According to Tanu Sharma, director of ratings at Brickwork Ratings, BWR’s passenger vehicle revenue growth estimates could be revised down to 15% for 2022 amid more severe semiconductor chip shortages affecting shipments and muted sales for the holiday season.

“The utility vehicle segment is, however, expected to grow 20% year-on-year in 2022 thanks to the resumption of construction, agriculture and e-commerce activities, coupled with a weak base. Due to rising commodity prices and rising fuel prices, vehicle price increases will be inevitable. and pose a high cost of ownership challenge for mid-term buyers, ”said Sharma.

“Increases in vehicle prices may not fully cover rising inflationary costs and could hurt the profitability of automakers. in solving semiconductor chip shortages remain relevant. “

Further, Sridhar V., Partner at Grant Thornton Bharat LLP, said: “The automotive industry looks optimistically to 2022 despite several challenges it faces in the form of a shortage of chips, Omicron, increased input prices. . “

“Government kick-off of the PLI program with clear directional indicators supported by actions under FAME, introduction of scrapping policy, increased demand, positive sentiments and Indicators of overall economic growth should bolster optimism Chip shortages are expected to ease in the near term to keep pace with demand expectations 2022 is expected to be a wake-up year for the industry.

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