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Covid-19 highlights need for reduction in dependence on Chinese auto component imports in India, says GlobalData

Covid-19 highlights need for reduction in dependence on Chinese auto component imports in India, says GlobalData

Following the news that 25,000 auto executives in India will be working from home to contain the spread of Covid-19 contagion;

Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading research and consulting company, offers his view:

“Most of these employees are from key original equipment manufacturers (OEMs), including Ford, Tata Motors, Mahindra, Volkswagen, FCA, Renault, Volvo and MG Motors. While factory workers will continue to operate in plants, it will not be ‘business as usual’. OEMs are trying their best to give safe working environment to factory workers and other employees in key operational roles in order to ensure that supply chain does not get ‘further’ impacted. Automakers, including Maruti Suzuki, Hyundai Motors India, Toyota Kirloskar Motors and Tata Motors have put in place several measures such as thermal screening, business travel restrictions, maintaining physical distance and suspension of biometric attendance systems, to prevent the exposure of their workforce.

“These steps have been warranted by the sudden spike in the confirmed Covid-19 cases globally and in India. Though the confirmed cases to the overall population ratio indicates that India has so far managed to control the outbreak better than most of the countries, there are concerns regarding undetected cases. Moreover, in India, the highest number of cases has been reported in Maharashtra, a state which is a major automotive hub.

“The automotive supply chain in India has been impacted due to the disruption in availability of auto components and the impact is being felt across all segments i.e., passenger vehicles, commercial vehicles, two and three wheelers and electric vehicles. A large portion of the components imported from China are sold in aftermarket and it would impact the aftermarket segment as well as repairs & maintenance market.

“Covid-19 is also impacting the demand side as there has been a decline in footfalls across dealerships. There are reports that in some states, authorities have asked auto dealerships to temporarily close operations. With a sudden spike in the number of confirmed cases in India, footfalls can decrease further. The impact is likely to be high on dealers of two-wheelers as several dealers have significant BS-IV inventory to clear by the end of March 2020.

“In every crisis, there are lessons. For example, tractor segment has comparatively been less impacted due to high localisation and limited dependence on imports. OEMs must work towards reducing their dependence on Chinese suppliers for key parts like drive transmissions, electrical and electronics, brakes, engine components steering systems and EV components. The Indian automotive industry should develop capabilities and competitiveness of domestic suppliers, especially for supplying such components. Apart from reducing the risks in supply chain, it would also positively impact the auto component market, including aftermarket, in India.

“Such a shift cannot be immediate as it would require significant investments, design and development, regulatory testing clearance and so on. However, it would be worth taking that path as it would help in de-risking the supply chain and increasing preparedness for future similar crises. Moreover, online sales platforms such as Hyundai’s ‘Click to Buy’ should be promoted as they can help in combating demand side challenges to an extent.”