2022 paints a chaotic, uncertain picture for auto sector despite healthy demand

A tough 2022 for India’s passenger vehicle market

“The next six months to 12 months are going to be crazy, for everyone,” Rajeev Chaba, the president and managing director at MG Motor India, tells Fortune India. The British brand under Chinese owners is going to launch a new EV next year, which is touted to take on Tata’s Nexon EV. The company had acquired the now-defunct GM India’s manufacturing facilities at Halol in Gujarat, and is ramping up production.

“The project should be finished in the next two months. We inherited a manufacturing capacity of 75,000 units annually, and we are now looking at a capacity of 120,000 units annually,” Chaba adds. It sees huge demand for its products but the semiconductor shortage and disruption in the supply chain has deterred them from fulfilling that demand. “Currently we’re getting 1,400-1,500 orders per month, but we are only able to supply only 250 to 400 orders per month, now onwards,” Chaba explains.

Ever since the industry was hit by the semiconductor shortage, it has been subsumed into the realm of uncertainty. “Frankly no one knows the answer to this pertinent question — when will it get over. We all have struggled for the past two years. This year, when we thought the worst of the pandemic was behind us, we were hit by these new geopolitical escalations. It also caused major disruptions in the shipping industry,” Chaba avers. He also adds that there is huge pressure to maintain costs, and the availability of products in time. “Nobody knows how it will pan out,” he remarks. According to Chaba, automakers will have to trudge carefully to circumvent the triad of problems — the semiconductor issue, the commodity price spike issue, and the shipping disruption issue, in the short term.

MG Motor India had hiked the prices of its cars in January, and is also planning to hike the price of “one or two products” in the month of April, according to Chaba. Several automakers have been passing on the price hike to consumers — with Tata Motors, (which emerged as an early leader in India’s nascent electric car market), also hiking the price of its Nexon EV by ₹25,000. Shailesh Chandra, who heads Tata Motors’ electric mobility operations, has said that the cost of battery cells — the most expensive component of an EV — has spiked by 20%, and the company is under pressure in the near-term. According to Chandra, the price of battery cells will remain high for a year, before mellowing.

It is also understood that Tata Motors will offset some of the cost incurred by increasing its localisation levels — something which most automakers are pivoting towards, two or four wheelers. When Sharma of Okinawa was asked how is the company shielded from the crisis which hitherto has jolted the auto industry, he claims that Okinawa learnt during the initial days of the semiconductor shortage that sourcing components locally has helped the company keep up with the demand. Even Jeep, one of the many brands under the Stellantis fold, claims that it has maintained volumes due to high level of localisation. Speaking on the unveiling of Jeep’s Meridian, Roland Bouchara, the CEO and managing director at Stellantis India, tells that it has achieved 82% localisation for its latest offering, but remarks that any sales projection would be difficult because, “Covid-19 is still not behind us”.

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