Car production in India improves amid easing semiconductor shortage
The ongoing global semiconductor shortage is gradually subsiding, leading to a boost in car production in India, particularly in the passenger vehicle (PV) segment. Production saw a 6.25% YoY growth, with 2,418,601 units produced in H1 FY24 compared to 2,276,401 units in H1 FY23, according to the Society of Indian Automobile Manufacturers (SIAM). Anuj Sethi, Senior Director of Crisil Ratings, mentioned that the chip scarcity faced by Indian PV manufacturers is lessening, with current availability at "85-90% of total requirement."
Reduced chip requirement in technology sector and reallocation of supplies
PVs typically need around 1,500 chips, the most among automobiles. The chip demand grows as more sophisticated electronic features are added. Electric PVs utilize nearly double the number of chips compared to their ICE counterparts. Lately, an increase in supply and a slowdown in demand for computers and mobile phones have resulted in the redistribution of chip supplies to other sectors, particularly automotive.
PV sector has higher-than-expected demand for semiconductors
At present, most PV manufacturers are operating at nearly full capacity utilization due to higher-than-expected demand. However, despite the significant easing of chip availability, new orders to be fulfilled remain high at approximately 700,000 units, as of September. Previously, global automotive demand experienced a robust recovery in the latter part of FY22, catching manufacturers off guard as they had not placed substantial chip orders.
Future outlook and investments in new semiconductor fabs
Recognizing the importance of chips in defense and aerospace industries, the US and EU have provided incentives totaling around $100 billion for localizing semiconductor fabrication plants (semiconductor fabs). Consequently, numerous global players are expected to invest nearly $360 billion in establishing new facilities, which are projected to become operational by fiscal 2026. In India, chip demand will continue to grow over the medium term, fueled by the gradual increase in EV adoption.