Indian Auto sector finally has a reason to smile.
Indian automakers may start getting the crucial Chinese supplies soon.
Chinese factories are back in production after weeks of continuous shutdown. The move came as good news for several automakers who relied on Chinese firms for components. In the past few weeks, China’s industrial hubs went in complete lock down due to the COVID-19 outbreak. The lock down has caused several Indian automakers scrambling for parts which are needed to get their vehicles off the production line.
Components in high demand as India move towards BS-VI:
The resumption of components comes at a critical time for the auto industry in India. The country is shifting towards BS-VI emission standards starting from April 1st. The transmission towards BS-VI has led to massive upgrades, which means new components are needed to meet the new norms.
The Chairman of Maruti Suzuki Mr. Bhargava stated that its production line is not facing severe shortage of supplies from the outbreak and lock down in China. He further added that the situation has been improving gradually.
Factories outside Wuhan have started operations at a lower scale. Wuhan is the epicenter of the coronavirus virus outbreak .
Meanwhile, the Chief Purchase Officer of Mahindra and Mahindra has communicated in the media that there has been improvement in weekly supplies. Major firms in China are back into production although at a much lower volume. At the current pace of improvement, supplies from China will be normal from April on wards.
Effect of the outbreak on Indian companies:
Ashok Leyland has stated that the company is facing a crunch due to the lock down of Chinese factories. The company depends on Chinese firms for crucial BS-VI components such as fuel injection pumps. However, there was a slight disruption in supplies in the month of February.
This has lead to several auto companies looking to source the components locally.
Sourcing local parts will boost the domestic auto components industry. An industry supplier has said the orders have increased since the past few weeks. Earlier brakes and components were imported mainly from China, but now companies are looking to source them from local companies.
Different Indian auto companies import around 10-30% of vehicle parts from Chinese manufacturers.Parts like brakes, steering systems, illumination systems and engine parts are primarily dependent on China.
Automakers look for options:
Automakers will have to look for options to avoid the future risk of halting productions due to lack of components and dependence on a single source, as demonstrated by the virus lock down. Original Equipment Manufacturer (OEM) will now have to look towards local parts and imports from other countries. However, an immediate shift towards local suppliers may not be practical. This is due to price difference and time-consumption to fulfill demands and quality constraints.
The gestation period and high investment will make it tough for local companies to keep up with the demand from various automakers. Automakers inventory may be able to supply the crucial components for about four to six weeks only. But the good part is the auto companies had stocked up components in preparation for the Chinese New Year as factories shut down their operations.
During 2018-19 India imported USD4.5bn automotive components from China. According to analysts, the transmission towards BS-VI will be smooth and out danger in acquiring critical components. Several components are also available in the aftermarket in India. India imports more components than it exports while at the same time the majority of the products go to the aftermarket.
Indian automakers may start getting Chinese supplies soon. This is good news for the Indian Auto industry