The automotive industry comprises a wide range of companies and organizations involved in the design, development, manufacturing, marketing, and selling of motor vehicles.
Semiconductor Shortage and Automotive industry
We are facing a global semiconductor shortage. Some key reasons behind the shortage are, supply chain disruptions due to the pandemic, a sharp rise in demand for electronic goods as more people are now working from home and lack of investment in chip building capacities.
Semi conductors are used in the electronic control and many units of vehicles. But, now the auto industry are not receiving semiconductors according to their needs. Most of the semiconductors are going to consumer electronics like gaming consoles, personal computers and television. Demand for those gadgets sky rocketed recently.
The so created global semiconductor shortage has upset the production in Automotive industry. Many companies are compelled to revise their volume due to shortage of parts and to lower their production target.
When the pandemic strikes many companies were not able to sell their products first. According to SWOT analysis that was their threat. But they managed to increase the customers by effectively using the opportunity of online platform. So the industry was going well amid pandemic crisis. Now, when they finally able to sustain the customers, they are not in a position to produce that much number vehicles and it is due to the shortage of semiconductor chips.
PORTER’S FIVE FORCES ANALYSIS
According to Porter’s five force model ‘suppliers’ are one of the five competitive forces that shape every industry and helps determine an industry’s weaknesses and strengths. Now, the suppliers of semiconductor is the deciding factor of Automotive industry. Production of semiconductor chip is a long process and it requires a long production time. So since there is a global shortage of semiconductor the production of vehicles is decreasing and thereby reducing the income from this industry. The Indian passenger vehicle market will make about 100,000 fewer units this quarter, leading to a loss of about Rs 10,000 crore in revenue, as a global semiconductor shortage.
HOW CCOMPANYS ARE TRYING TO HANDLE THE SITUATION?
Many of the companies are compelled to revise their production plan and are compelled to lower their target.
Since there is global semiconductor shortage the bargaining power of suppliers is very high. Due to the shortage, the vehicle makers are compelled to source parts from the open market at higher prices, affecting their margins. Companies are engaging directly with the semiconductor suppliers, spot buying from the open market and developing alternative sources. In parallel, they are looking at design interventions to optimize the semiconductor consumption.
The situation has compelled vehicle makers to redesign products. Companies are engaging with semiconductor manufacturers directly for clear visibility. Automakers have been compelled to explore an option of the wide use of the standard chip.
Chip capacity won’t catch up with demand in the short term for the auto industry. So current supply and demand imbalance for semiconductors will take time to resolve. Hence the bargaining power of the semiconductor suppliers will stand as a deciding factor.So the companies under this industry need to make both short term as well as long term plans to recover from this crisis.
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