Indian Auto industry may suffer another setback due to the ongoing Russia-Ukraine conflict. The situation between the two countries is directly disrupting the global automotive supply chain. To make the matters worse currently China is fighting another wave of the COVID-19 which has further dampened the recovery of the auto sector. The Chinese tech hub Shenzhen was put under a lockdown for a whole week which led to severe disruption among the chipmakers. Shenzhen is known to be a tech hub as many giants like Tencent, Huawei, and Foxconn are currently home to such companies.
The Federation of Automobile Dealers Associations (FADA) has strong concerns about the shortage being currently faced by the sector and has changed its outlook towards the year from neutral to negative.
Supply Chain Disruption
Firstly, Russia and Ukraine are known to be rich in rare-earth metals. Russia has the fourth-largest reserves of the group of rare metals which are vital to most modern-day electronic products. As per the report released by FADA, Russia is one of the largest producers of rare-earth metal Palladium which is essential for Semiconductors, on the other hand, Ukraine is amongst the leading supplier of Neon gas now with the war going on countries largest supplier grade-neon have halted its production for now. Neon is essential for the making of semiconductors. The ongoing war has affected the Commodity market in a big way, as Crude recently touched the $130 per barrel mark, which it last did in 2008. Many essential commodities like Aluminum and Copper are making new highs every day.
Impact on Auto-Industry
With the price spiraling out of control, the margins of the auto industry have been impacted significantly. According to the Sales data released by the Indian Auto Industry, it is down by more than 20% compared to 2020 pre-covid months. This shortage is leading to a decline in production and many companies decided to slash production starting from April.
In India most car companies have reported a slump in their sales last month due to high inflation, there was less enthusiasm among the buyers. The largest automaker of the country saw a decline of 7.4% year on year on its sales blaming the shortage of electronic components. Even, Hyundai which is the second largest manufacturer lost almost 15% of its sale due to inflationary pressure and supply disruption.
Impact on Electronic Industry
Another possible victim of the War and Pandemic could be the consumer electronic segment. The sector is highly dependent on its imports from China, where a new wave of virus has hit the supply cities of the country. India is currently dependent on China for raw materials, almost 50-60% of our electronic components are brought in from China. This disruption not only impacts the Indian supply chain but also American companies, as Apple is heavily dependent on its supplier Foxconn which manufactures iPhone and have currently been shut leading to an extended period of supply disruption which could further push the shortage of chips into April and May.
