Indian automakers are beginning to feel the operational strain of the West Asia conflict, with companies flagging supply bottlenecks, longer shipping times and rising costs, even as domestic demand remains resilient.
Early signals from industry executives suggest the impact is weighing far more on supply chains than on demand, which has so far held up. The spillover is beginning to feed into production and exports, pushing up costs that companies are gradually passing on to consumers.
At the centre of the strain is the Strait of Hormuz, a key maritime chokepoint that has seen vessel movement fall sharply amid repeated disruptions. The tightening of this critical energy route is feeding into global oil and gas volatility and adding to cost pressure for industries such as automakers that depend on these inputs.
Exports, in particular, are under pressure as shipments through the strait and other routes face delays and congestion. Longer transit times are compounding strain on logistics and inventory cycles.
“When the shipment or ship calling schedules get disrupted, then it becomes a very big logistic nightmare. It seems that only the state of Hormuz is affected. But there is a ripple effect,” Bajaj Auto’s executive director Rakesh Sharma told Mint in an interview. “Then there are the transit times, which increase. Like our shipments to Mexico and Brazil, which take 50 days or so, are now taking 70 days.”
Against these emerging signs of strain, India’s passenger vehicle exports rose 2.2% year-on-year to 78,922 units in March, while two-wheeler exports increased 17.5% to 428,622 units.
Impact on production
Since the escalation began with coordinated strikes by the US and Israel on Iran on 28 February, disruptions along the Strait of Hormuz have affected the supply of liquified petroleum gas (LPG), a key input for the automobile sector largely imported through this route.
With suppliers dependent on LPG for production processes, automakers have had to help shift operations to piped natural gas (PNG) and increase electricity use.
“Precarious is the word I would say because I am just basing on how I have seen the environment in March in my company,” Shailesh Chandra, managing director and chief executive at Tata Motors Passenger Vehicles Ltd, said during a Society of Indian Automobile Manufacturers (Siam) press conference last week.
“The clarity on supplies from the suppliers, especially for where there was dependence on LPG and all, the clarity used to come every third day that we are safe for the next three days and so on. So it has been a bit stressed,” Chandra added.
Sharma of Bajaj Auto also noted that the company is not able to produce as many vehicles as it would ideally want owing to the stress.
Costs and demand
Despite rising costs, automakers have not yet seen a broad-based impact on demand. According to Siam data, passenger vehicle sales in March grew 16% year-on-year to 442,460 units, while two-wheeler sales rose 19% to 1.97 million.
Companies have, however, begun passing on higher input costs. The management of Hero MotoCorp told analysts at Motilal Oswal Financial Services that it has already implemented price increases.
“To offset this (input price increase), HMCL has already implemented two price hikes in 4Q and may require additional hikes going forward,” analysts at Motilal Oswal wrote in a 13 April note.
Car makers including Tata Motors, Mahindra and Mahindra, and Hyundai Motor India have also announced price hikes.
"We will be taking a call, but unfortunately the commodity prices are going very high, we need to pass it on, so we will come back very soon on that," Partho Banerjee, senior executive officer of marketing and sales at Maruti Suzuki India Ltd, said during a press conference on 1 April.
There are early signs of caution in some segments. According to Girish Wagh, managing director and chief executive at Tata Motors, sentiment in parts of the commercial vehicle market has turned cautious.
“Certain segments, especially ports, was actually the first one where we had seen postponement of purchase,” Wagh told reporters last week in Lucknow during a press conference. “But I won't say it is a broad-based thing. I think largely the sentiment is cautious. Because this kind of an event will certainly impact the sentiment.”
Normalcy timeline
Experts expect the disruption to linger even after the conflict ends, given the extent of the supply chain impact. The US and Iran remain in talks for a potential deal, but peace has remained elusive so far.
“It will take at least six to nine months for automakers to fully stabilise operations after the war is over because of the sheer disruption it has caused. The way costs have surged, companies may have to carry on the impact to the next financial year as well,” said Vinay Piparsania, founder at MillenStrat Advisory and Research.
“While rising costs put pressure on automakers to pass on the impact to consumers, it will not fully wipe out the gains made after GST cuts as it structurally has made cars affordable from the taxation front,” Piparsania added.
There are early signs of adaptation. Ashok Leyland, which saw disruption at its plant in the United Arab Emirates after the war broke out, said it has begun restoring operations by sourcing components through alternate channels.
“Slowly we have started to find ways of alternate means to get the components. Some impact is there but it has come down significantly,” Amandeep Singh, president of LCV, international operations, defence and power Solutions at Ashok Leyland, told reporters during a press conference last week.