Is the Indian Auto Industry Heading for Fast & Furious Days?


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In 2022 India overtook Japan to become the third largest auto market in the world, while this is a milestone for the industry the sector has yet to navigate the speed breakers: For months the auto sector has been bogged down by supply chain restrictions coupled with new regulations around about airbags and stricter emission standards. So are we over that and headed for a speed recovery?



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In the recent past, there have been several supply chain challenges due to semiconductor shortages, port congestion, European energy crisis and labor strikes, rising commodity prices, lockdowns in global manufacturing hubs such as China, and low visibility among value chain suppliers. “The average lead time for chips increased from 8-10 weeks to over 20 weeks over an 18 month period. At the same time, the demand for chips is increasing with the booming 5G ecosystem (computing and telecommunications), smartphones, consumer electronics and increased consumer mobility needs. This mismatch between demand and supply is expected to continue in the coming year,” said Rajat Mahajan, Partner at Deloitte India.

Building a resilient supply chain

Several industries, including automotive, are deploying guard rails through short- and long-term strategies to keep their supply chain resilient during these trying times. The few immediate actions taken by the stakeholders are increased visibility for upstream semiconductor suppliers, activation of dedicated teams to secure Tier II capacity, and engagement of alternative suppliers to secure volumes.

“At the same time, few long-term interventions are also driven by extending long-term volume commitments and supplier margins, maximizing volumes by bundling demand, and acting as one voice for the entire chain (representing multiple Tier One suppliers in negotiations). , rethinking the product roadmap, etc.,” added Mahajan.

In order to increase market share in India, automobile companies are trying to localize their production. In April 2017, Kia India signed a Memorandum of Understanding (MOU) with the Andhra Pradesh State Government to build a new manufacturing facility in the Anantapur District. Kia started mass production in August 2019 and has an annual production capacity of around 300,000 units. The brand has a widespread network and is focused on expanding its presence across the country. “The start of the third shift at our state-of-the-art facility in Anantapur has helped us improve the supply chain. We are constantly trying to localize production and India is our top priority as a market,” said Myung-Sik Sohn , Chief Sales and Business Officer, Kia, India.

As part of the expansion of capacity in India, MG (Morris Garages) Motor India introduced the first production version of Hector at its state-of-the-art Halol plant in Gujarat in May 2019. In 2019, MG’s Halol plant had a production capacity of 80,000 units per year and had the option to increase capacity as needed. By 2023, the plant has ramped up capacity to 120,000 units per year, in line with the company’s vision to increase volumes. “It’s a constant effort to improve the supply chain in terms of timing and quantity. Companies around the world are suffering from the lack of semiconductors, chips, logistical problems and things are relaxing. Hopefully we will see improvements this year,” said Gaurav Gupta, Chief Commercial Officer, MG Motor India.

According to a report by McKinsey & Co. published in December 2022, automakers and their key suppliers are rethinking their supply structures in the face of the global pandemic and rising political instability. Many recognize the growing need for more localization due to new global supply risks and tighter regulatory requirements. In addition, continued consolidation of the supplier base could give some suppliers monopolistic advantages over automakers.

India’s leading automaker Maruti Suzuki has been working to improve its manufacturing capacity and focus on building a resilient supply chain. According to a PTI report, Maruti Suzuki India (MSI) is expected to increase the production capacity of its Manesar plant by one lakh unit to meet increased demand before the Sonipat plant starts operations in 2025. “The sector is suffering from semiconductor shortages, while 95 percent of the problem is fixed, it would still take some time before a full recovery occurs. Due to the shortage of chips, we have not been able to deliver certain models in the desired quantities and there is a long waiting list. We have around 366,000 pending bookings. While globalization enables capacity consolidation in different factories and contributes to economies of scale, to make the supply chain resilient, we need to shift some capacity for high-risk items within the country,” said Shashank Srivastava, Executive Director at Maruti Suzuki India GmbH.

As players grapple with new challenges, automobile sourcing in India must be strategically redesigned.

Implementation of six airbags

Maruti Suzuki recently recalled 17,362 units of its six models Alto K10, S-Presso, Eeco, Brezza, Baleno and Grand Vitara to fix a possible defect in the airbag control unit. “The recall conducted to inspect and replace, if necessary, airbag control units (“Affected Part”) free of charge in these vehicles. There is a suspicion of a possible defect in the affected part, which in rare cases could result in deployment of the airbags and seat belt pretensioners in the event of a vehicle crash,” the company said in its registration application.

The Department for Roads, Transport and Motorways proposed in January 2022 that category M1 vehicles manufactured after 1 October 2022 must be fitted with two side/side torso airbags, one each for the occupants the outer seats in the first row and two side curtain/tube airbags, one each for the people on the outer seats. The move is aimed at improving safety, but after considering objections from stakeholders, Union Minister Nitin Gadkari said the mandatory six-airbag rule for passenger cars will come into effect in October 2023.

According to information available to the Society of Indian Automobiles Manufacturers (SIAM), of the total monthly sales volume of 327,730 passenger cars, only 17 percent of the total 55,264 cars are equipped with six airbags. Airbag consists of the airbag cushion, a flexible fabric sack, an inflation module and an impact sensor.

In a written reply to Rajya Sabha in December, Gadkari said: “According to the Automotive Component Manufacturers Association (ACMA), the current airbag production capacity in the country is 22.7 million and the estimated production increase for the next year is 37.2 million. Linked Incentive (PLI) Scheme filed by the Government for Automobiles and Automotive Components provides incentives for airbag applications, namely airbag inflator, airbag electronic control unit and airbag sensor, among others.

On average, adding just the front airbag to a car costs between INR 1,800 and INR 2,500, while a side and curtain airbag can cost much more without the expense of additional wiring and electronic components. “If you add up all the costs, it would mean that every car sold in the small to mid-range segment would receive a minimum price increase from about INR 25,000 to over INR 35,000,” Mahajan added.

Gas generators are a safety-critical component. Until recently, it was imported, and now some auto component manufacturers have localized this part, but it will take time to achieve economies of scale to reduce costs. “As India is largely a mid-size car and compact SUV market, adding INR 35,000 will result in a price increase of 3 to 6 per cent (considering vehicles sold are in the 6 to 12 lakh range) and time for a redesign of the vehicle will be a challenge as it will require modification of the panels, wiring and control systems. Therefore, a price increase coupled with a tough implementation schedule may affect car sales,” added Mahajan, Partner at Deloitte India.

Maruti Suzuki India had previously said the six-airbag standard would adversely affect the shrinking small car market, and the automajor noted that the regulation would have a major impact on the cost-sensitive entry-level car segment. “The industry is discussing the regulations, the price increase will vary from model to model, we have to wait for the final regulation. among others,” added Srivastava of Maruti.

Car and commercial vehicle prices would rise as car companies invest in upgrading vehicles to meet stricter emissions standards that will come into effect in April this year. To maintain growth momentum, the sector needs to be dynamic and agile to adapt to new scenarios amidst challenges.



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Hey, I am Sakib Hossain Sojib, an entrepreneur known as an SEO Specialist, Digital Marketer, Blogger, and Content Creator. I have a team of researchers who guide and review products for our audience to help them by providing valuable information to help our audience makes the best decisions for their needs. I love to take care of my cars. So, I like and enjoy car maintenance and automotive research. The provided content is based on my learning, research, and understanding of the topic and its concept. Our extensive experience in the industry allows us to offer unique insights and perspectives on the latest trends and products. We aim to educate and empower our readers by providing them with the knowledge they need to make informed decisions about their needs.

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