Supply chain worries for auto sector to continue even as demand improves

Industry fears Russia-Ukraine war will further dent recovery prospects as supply chains will be disrupted further

Supply chain constraints will keep plaguing auto companies even though demand significantly improved resulting in double digit increase in sales. Executives of auto companies’ fear that the ongoing Russia-Ukraine war will further dent the prospects of recovery of the sector as supply chains will face more disruptions.

In FY22, the automobile industry clocked a year-on-year growth of 13 per cent in sales.

“The visibility on the supply side is so hazy that it is difficult to give even one quarter projection. But all the parameters of demand like pending bookings and enquiries are increasing. But due to supply constraint, the pending deliveries are increasing which is what we are looking to reduce,” said Shashank Srivastava, ED-Marketing and Sales at Maruti Suzuki.

While the country’s largest car maker domestic sales in Macrg declined by 8.4 percent, it covered up through exports which grew by 128 percent to 26,496 units as compared to the corresponding period last year.

Sales of Hyundai- which is the second largest carmaker declined 14 per cent to 55,287 units in March, as compared with the same month last year.

Tata Motors however turned around a corner with a significant 49 percent increase in sales. “Despite the shortage of certain electronic components, we posted the highest ever quarterly sales of 123,051, a growth of 47% vs Q4FY21.

We ended the financial year with the highest ever monthly sales of 42,293 units, a growth of 43 percent vs. March’21 and highest ever SUV sales of 29,559 units,” said Shailesh Chandra, Managing Director, Tata Motors Passenger Vehicles. The EV sales of the company saw a significant boost with 353 percent growth in sales.

“Our annual EV sales touched 19,106 units, a growth of 353% vs FY21. Quarterly sales of EV were highest at 9,095 units, a growth of 432% vs Q4FY21 and EV sales for March’22 was also the highest at 3,357 units, a growth of 377% vs Mar’21. Going forward, semi-conductor situation remains uncertain. We will continue to monitor the evolving situation closely and are refining our agile, multi-pronged approach to continue to fulfil customer orders, “Chandra said.

However, rural sales continued to remain a spot of concern which reflected on the muted growth of tractor and two wheeler sales. Total tractor sales for Mahindra and Mahindra fell by four percent while TVS Motors saw sales drop by 4.5 percent. “ Going forward Record procurement of Kharif acreage, substantial increase in exports of agricultural products like wheat, sugar and cotton will help improve the financial position of the farmers leading to better cash flow in the rural market to help boost tractor demand going forward,” said Hemant Sikka, President - Farm Equipment Sector, Mahindra & Mahindra.

Experts said that the short to mid-term outlook of this financial year is dependent on the ongoing situation with Russia-Ukraine conflict as it may continue to impact the global auto supply chain, including India. “FY23 holds cautious optimism for the auto sector. It is expected that improvement in the economic index will give a push to demand, further improving two-wheeler sales. With the stabilisation of the semiconductor supply chain and reduction in oil prices, domestic sales could reach pre-COVID levels,” said Saket Mehra, Partner and Auto Sector Leader, Grant Thornton Bharat.