The bleakness in the automobile industry is expected to hit and pull down the forecasted GDP since the industry has not yet revived.
As per OICA 2020 report, India is the 6th largest car manufacturing country worldwide with an increasing number of road transport passengers i.e., 22,582 billion passenger movement per kilometer. Additionally, there were 295.8 million (vs 190.7 million in FY 2014) number of registered vehicles across the country in the FY2019 per the Ministry of Road Transport and Highways report.
It is to be noted that the automobile industry is not only seen as a GDP contributor but also the employment generator evident by the fact that, the direct employment in the automotive sector across India in the FY2018 was 1.4 million as per the MRTH report.
During the COVID-19 outbreak in India, the automobile sector felt the heat when there was a mandate shut down by the state, and the value of automobile components produced came down from INR 473 billion to INR 315 billion in the FY 2019 and FY2020 respectively, as per the report shared by CARE Ratings. It is inherent that the indirect employment of the lower middle class associated with the automobile Industry, went for a toss in addition to direct employment, to some extent. Focusing on the fact that the central government-generated approximately INR 2.8 trillion from road transport taxes, which was an all-time high, and increased by 40% from FY2016 to FY2017, and now, the central government has arrived with a vehicle scrapping policy wherein the passengers will get 25% rebate on the road tax against the scrapping certificate.
Also, the export volume of passenger vehicles from India fell down to 40.4% from 66.2% in FY 2021 and FY 2020 respectively as per the SIAM India report
Based on the SIAM India report, the Export volume of passenger vehicles from India and the Export volume of two-wheelers from India, decreased by 16.68% and 6.1% in the FY2021 respectively, in which export volume of the commercial vehicles was majorly hit in the FY2020, and decreased by almost 40%.
The production volume of passenger vehicles in India is still feeling the heat since it was at 3.43 million in the year 2020 vs 4.03 million in the year 2019. Considering the recent figures by SIAM India, in the FY2021, the production volume is expected to decline further to 3.06 million, which has not accounted for the semi-conductor supply chain problems faced by the industry.
Based on the actual production report of different companies in the FY2021, the companies are still struggling not only on the selling side but also for the production side, of the cars. The recent exit of Ford from India was one of the consequences. Based on the recent statistics on Maruti Suzuki’s sales in September 2021 including domestic sales and export was at 86,830 units as compared to 160,442 units in the corresponding month last year, which marks a sharp decline of 46% y-o-y.
Considering the fact that the automobile sector as a part of the overall GDP of India stands at 7.1% and 49% of the manufacturing GDP, which compels for the support, to reach to the forecasted GDP. Based on the Mckinsey report, the automobile industry is losing billions of dollars due to the scarcity of semiconductors which began in Q1 of 2021. Also, major carmakers have already announced a significant number of rollbacks in their production line, which will hit the top line of the financial statements.
Like any other problem, the semi-conductor shortage started during the COVID-19 pandemic. The first half of 2020 was a nightmare for the country, so was it for the automobile sector and demand for the same declined drastically, which led to a proportionate decrease in the demand for semiconductors. However, in the second half of the year 2020, the demand for the chip (used in the semi-conductor, server, personal computer, etc.) increased exponentially due to the adoption of new normal and remote work. Now, with an increase in the demand of the automobile segment, the semiconductor industry is unable to match the demand after fuller utilization of resources. Therefore, the delayed supply chain and delivery of chips (12 weeks to 17 weeks now) are hitting the car manufacturers and consumer electronics manufacturers.
Automobile players are struggling to launch new models of the cars, as M&M projected to launch flagship Mahindra XUV500 and its new Scorpio, but now concerned for the availability of the semiconductor. The grief also lies in the premium two-wheeler segment as well, since, the production of the KTM range of bikes at Bajaj Auto is facing a production struggle due to the shortage of semiconductors.
In recent months, the price of premium electronics has shot up around 25% compared to last year, which is a direct result of the chip crisis. With this, one can expect a re-correction in the prices of products in the automobile industry, which will eventually hit the pocket of the customers and by and large the forecasted GDP of India.