Mahindra and Mahindra likely to scale down production due to global chip shortage

Impacted by the ongoing global chip shortage, Mahindra and Mahindra is looking at scaling down production. The automobile industry has been severely hit as demand for chips continues to exceed supply. Goldman Sachs has estimated that this will wipe off $20 billion off global carmakers’ operating profit this year.

Rajesh Jejurikar, M&M executive director, said the company is evaluating it and hasn’t reached a conclusion yet. “We are looking at what we have in our inventory and the balancing act that needs to be done,” he said. “We will make delivery announcements about the XUV700 when we have more confidence regarding the semiconductor situation.”

Jejurikar told ET that the festive period is going to be difficult for the domestic auto industry as timely delivery of vehicles will become a challenge due to the shortage of semiconductors. “Besides, resurgence of a COVID third wave continues to be of concern. This upcoming festive season will be very strong from the demand point of view but pretty uncertain from the supply side.”

Anish Shah, M&M CEO, described the situation as very dynamic. “What has hit companies like M&M is the resurgence of the pandemic in Asian countries like Malaysia which are semiconductor sourcing hubs. Malaysia is going through a serious wave of the pandemic and since a lot of semiconductors come from the Asian side, it is affecting supplies.”

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Analysts are warning that the global economy has entered a peak shortage of chips, with tightness in supply expected to ease slightly in the third and fourth quarters of the year. However, the global stock of semiconductors is not forecast to return to pre-pandemic levels until 2022. Toshiya Hari, a research analyst at Goldman Sachs, said the shortage has been caused by a combination of better-than-expected demand and also a very bumpy recovery on the supply side. “It does take a very long time for semiconductor companies to increase output. It takes time to purchase the tools. The actual manufacturing of the chips takes a couple of months as well.”