Prolonged China lockdown could impact domestic automobile companies’ operations

The operations of domestic automobile manufacturers may get further impacted if the lockdown in several cities of China, including Shanghai, to check Covid-19 infections gets prolonged.

The global semiconductor shortage has already forced original equipment manufacturers (OEMs) to take production cuts. The supply chain disruptions due to multiple Covid-19 waves and the recent Russia-Ukraine war have not helped the matter either.

Honda Motorcycle & Scooter India president, MD and CEO Atsushi Ogata recently told FE that the company is witnessing some impact on the production of a few of its models, which use smaller chips imported from China, as activities have been suspended at the Shanghai port.

“But the impact of Shanghai lockdown is a recent one. The major problem is chip shortage, not only for Honda Motorcycle & Scooter India but all the automakers globally,” Ogata said.

A Tata Motors spokesperson said that the automobile industry, in particular, continues to struggle with a global shortage of semiconductors, and while there is improvement in recent months, it remains uncertain in the short term.

“We continue to remain agile and flexible to the evolving situation and apply smart allocation across models to maximise production. We have also developed an alternate architecture for the affected parts and collaborated with the supplier partners to fast track the de-risking measures. For the future, we are working towards developing complete visibility of the supply chain through tiers and diversifying risk/s,” the spokesperson added.

Saket Mehra, partner and auto sector leader, Grant Thornton Bharat, said as Chinese imports cater to the Indian automobile, steel and electronics sectors, any lockdown will result in a direct impact on these sectors.

“Notably, the auto components imports in the Indian market grew 71% to $ 8.7 billion in H1 FY22 as compared to $5 billion in H1 FY21. China accounts for more than 26% of these imports, especially the electronic and metal components. Around $9 billion worth of electronic components (across sectors) are imported from China, which will also take a toll if lockdown continues for an extended period of time,” Mehra said.

Suraj Ghosh, director, S&P Global, told FE that if the lockdown curbs persist and normal production does not start in the next few weeks, India’s auto industry will be at risk of production hits, as several electronic components and sub-components are sourced from China.

“There could be a double-pronged impact. Not only could there be a risk of shortage of some electronic and other components, but ship availability could become a concern, leading to a hike in freight costs,” Ghosh noted.