Auto sector sees profitable ride despite chip shortage

February 3, 2022 (MLN): Despite supply-side constraints in the global automotive industry, mainly in form of semi-conductor chip shortages which have created havoc, the profitability of domestic auto companies is likely to expand by almost 23%YoY on account of better margins, a report by AKD Securities noted.

Globally, the pandemic induced shortage forced the leading auto manufacturers to curtail their production and due to this, the local OEMs faced several ups and downs in the outgoing year in terms of production schedules.

Resultantly, the new model Euphoria of Honda City vanished quicker than expected where INDU’s Yaris stole the party on better supply chain management of Toyota globally.

Production schedules of INDU largely remained immune to the supply shocks where other OEMs including PSMC and HCAR and new entrants Kia and Hyundai struggled to supply their products to the market where the delivery times stretched beyond 6 months for some models.

The supply-side hiccups to continue throughout this year as well which may keep the delivery times stretched and delay the new model rollout of the Honda Civic, the report added.

Cumulative volumes of INDU, PSMC, and HCAR to stay flat in CY22 at 228,000 units due to supply-side constraints as well as fiscal and monetary measures taken in the past few months to slash the demand.

On the international front, General Motors, Mercedes, Volkswagen, even Tesla, had to make adjustments to their production schedules owing to the persistent chip shortage. Toyota, on the other hand, steered clear of this mess by stockpiling around 1,500 kinds of parts it deemed necessary which bolstered the inventories, positioning themselves better than its peers.

The report further stated that the surge in demand during CY21-25 with a CAGR of 10% for this precious component has made the manufacturers go into the expansionary phase to increase their annual output. Japan-based semiconductor manufacturer, Renesas electronics, which contributes approximately 6% to the global automotive semiconductor output, is increasing its production capacity by 50%, expected to come online in CY23.

Although much of the developments are taking place right now, the shortage is expected to persist for the upcoming several quarters until the expansions come online.

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