These executives said input costs are at lifetime highs and the consumer should be prepared for price increases. According to industry estimates, auto and electronics companies may not manufacture about 5-10% of their planned production in April, and the impact will be greater in May-June.
BSH Home Appliances Group Global CEO Carla Kriwet told ET during her recent visit to the country that her company’s operations in India are facing a supply-side challenge, not a slowdown in supply. Requirement,
“Logistics, steel and semiconductor costs are skyrocketing. The supply situation is not going to improve this year,” she said, dashing hopes of an easing. supplies from June-July.
Automakers are already reporting an impact on production and sales. India’s biggest automaker, Maruti Suzuki India, said deliveries fell 10% in April. Hyundai Motor’s domestic sales also fell by a similar level.
“The shortage of electronic components has had a minor impact on vehicle production, mainly domestic models,” Maruti Suzuki said in a statement.
A senior Tata Motors executive said while the company expected the component supply situation to improve, it had worsened in the June quarter and the uncertainty is now likely to continue.
Shailesh Chandra, president of the passenger vehicle business unit at Tata Motors, told ET that input cost inflation has become a major challenge. “Outside of the usual raw materials like steel and precious metals, the additional impact of the premium paid to secure semiconductor supplies would be around 1% of our revenue.”
China is battling its biggest Covid outbreak with Shanghai under lockdown since April and curbing the rise in Beijing. This has impacted factory output due to closures and increased congestion at ports. The problem has worsened due to China’s zero Covid policy.
At the same time, prices for several commodities, including crude and metals, are at an all-time high due to the war and a recent World Bank report said prices would be at historic highs until at the end of 2024. The report says energy prices are expected to rise more than 50% in 2022 before slowing in 2023 and 2024, while metals are expected to rise nearly 20% in 2022 before moderating .
Manufacturers of air conditioners and refrigerators say supplies in May will fall short of demand, which has already hit a record high due to the heatwave and Covid-induced pent-up demand. Companies are also raising prices by 3-5% with immediate effect to account for the higher cost of inputs.
Godrej Appliances business manager Kamal Nandi said the shortage will become more acute in May. “The situation in China is bad…freighters are blocked and everything we have ordered is not arriving. Production problems will become a concern from the end of May,” he said.
Last Friday, Apple CEO Tim Cook said on a call with analysts that supply issues were “significantly lower” in the March quarter than in the December quarter, but that worsened during the June quarter. iPhone and Mac computer makers have estimated the impact of “supply constraints” at around $4 billion to $8 billion worldwide.
LG Electronics and Samsung also flagged similar concerns in their earnings releases last week. Samsung said smartphone demand is expected to decline slightly in the June quarter, while uncertainties over prolonged Covid-19 and component shortages are expected to persist in July-December.
Counterpoint research director Tarun Pathak said the shortage of smartphone component supply continued into April and was accompanied by logistical problems that hadn’t existed before.
Gaurav Vangaal, associate director, S&P Global, said supply chain constraints in May would likely be higher than those in April due to the current geopolitical scenario and China’s Covid scare. However, some selected players were likely to receive better supplies due to the diversion of chips from Russia to other markets, including India.