India’s automotive industry is likely to be negatively impacted by the outbreak of coronavirus (COVID-19) across China and South-East Asia, as China accounts for 27 per cent of India’s auto component imports, valued at $4.8 billion, credit rating agency ICRA said in a statement on Wednesday.
Typically, given the stock-up done prior to the Chinese New Year, companies maintain a comfortable four-six weeks of inventory. However, if the situation in China persists for another couple of weeks, potential supply disruptions will become more likely, said ICRA.
The country’s original equipment manufacturers (OEMs) source critical components and sub-components including fuel injection pumps, EGR modules, electronic components and turbo chargers from these markets.
Prohibitive factor
“…India’s automotive supply chain could get disrupted if the manufacturing activities in China continue to remain impacted owing to the coronavirus outbreak,” said Shamsher Dewan, Vice-President – Corporate Sector Ratings, ICRA. “The impact is estimated to be higher for high value-add and customised components, while commoditised products could shift to alternative suppliers. But the high investments and gestation period involved in developing tooling remains the key prohibitive factor for an immediate shift to new suppliers.”
ICRA said OEMs sourcing products such as electronic components, EGR modules, fuel injection pumps, turbo charger, meter sets, LEDs, magnets, airbag components, steering system components and electric vehicle parts will be affected the most. The impact will be more profound in the commercial vehicle (CV), passenger vehicle (PV) and two-wheeler (2W) segments, it added.
The tractor segment, which has high localisation levels and limited dependence on imports, will be privy to a much lesser impact, it noted.
Given that OEMs are currently transitioning to BS-VI production, any disruption in the supply of critical components has the potential to impact a smooth transition, said Dewan.
Sector-wise outlook
Sector-wise, ICRA has a negative outlook for the CV and PV segments. It has a stable outlook for the tractor and 2W segments due to expectations of a good rabi crop, which will support rural demand and sentiment.
However, in the case of 2W, higher prices of BS-VI vehicles and muted urban demand remain dampeners, it added. For the auto components segment, the outlook is negative, it further said.
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