Indian carmakers on alert after Dutch takeover of China-owned Nexperia triggers global chip crunch

The Dutch government’s move to take control of chipmaker Nexperia has provoked Chinese retaliation, constricting supplies of critical chips used in millions of vehicles across the world, including those made by Indian carmakers. Notably, such chips are not yet locally produced in India.

The country’s two largest carmakers—Maruti Suzuki India Ltd and Hyundai Motor India Ltd—said in the past few days that their supply chain teams are working to keep the situation in check.

“It is an industry-wide issue," K.S. Hariharan, head of investor relations at Hyundai Motor India, said during the firm’s earnings call on 30 October, adding that the company is constantly monitoring the inventory situation, while assuring that current inventory is adequate. “We are also closely working with our vendor partners to mitigate this impact so that we can have uninterrupted production of the plant operations."

“Our supply chain teams are working on the situation," said Partho Banerjee, senior executive officer, marketing & sales at Maruti Suzuki, without giving any further details.

Tata Motors and Mahindra & Mahindra (M&M) did not respond to emailed queries. Both companies are expected to announce their results in the next couple of weeks.

At the heart of the dispute…

Nijmegen, Netherlands-based Nexperia, owned by China’s Wingtech Technology, has been thrust into crisis after the Dutch government moved to take control of its operations citing national security concerns in September.

The company, which manufactures semiconductor chips used in vehicle electronic systems, sends partially finished products to China for final processing before exporting them to customers in Europe.

Notably, the bulk of Nexperia’s back-end assembly and testing of chips happens in China. However, their exports have now been halted by Beijing in retaliation against the Dutch move. According to Nexperia’s own disclosures, it holds about 10% of global market share and up to 40% in some of the product areas such as transistors and diodes used in cars.

Nexperia makes what are typically known as building-block chips used in several systems of a vehicle, including engine control units, ADAS, lighting systems, and infotainment systems, among others.

Global automakers and suppliers have expressed concerns, with Mercedes-Benz, Nissan and Honda, among others, reported to be grappling with the situation to get chips for their vehicles.

Germany-based component giant Bosch, which counts Indian automakers among its key clients, is also struggling.

The Indian unit of locally listed Bosch released a statement to the exchanges on Tuesday that supply chain disruptions like Nexperia affect the operations of the company significantly.

“The current situation presents us with significant challenges," the statement said, adding that it was working to minimize production impact. “However, if there is no improvement of the export control restrictions, temporary production adjustments in selected Bosch Limited’s manufacturing plants cannot be ruled out."

China’s vague assurances

On Saturday, China’s commerce ministry said it will provide certain exemptions to companies to import chips from Nexperia but will assess the situation of the companies.

“We will comprehensively consider the actual situation of enterprises and grant exemptions to exports that meet the criteria," the ministry said in a statement after a meeting between US President Donald Trump and Chinese President Xi Jinping, which led to hopes that the situation would be resolved.

However, the Chinese government has not clarified on what conditions these exports will be released, raising concerns about delays in shipments.

Analyst views

Analysts note that the Nexperia problem is a global concern, with no immediate replacement available to mitigate the crisis in the short term if exports are not resumed.

“We think it would take too long to replace Nexperia with other suppliers," said Puneet Gupta, director at S&P Global Mobility. “The more specific the chip is, the longer it also takes to onboard a new supplier. Maybe even a new homologation of some vehicles would be required in some cases."

Others such as Arun Malhotra, an auto industry veteran and expert, suggest that automakers have learnt to diversify sources and mitigate situations effectively after past troubles.

“Automakers are more conscious of geopolitical risks, especially after the rare earth crisis, so they are better equipped to tackle situations," Malhotra said. “One lesson everyone has learned is to not rely on one supplier or one country for a key component, which is helping them manage the situation."

The rare earth magnets situation

The developments come six months after the Chinese government imposed export restrictions on rare earth magnets, which severely impacted production of automakers in India, including two wheeler makers and four wheeler players.

On Wednesday, China started granting some licences to Indian companies raising hopes of the situation easing in the coming months.

Trouble at a time of demand surge

Dark clouds over production come at a time when automakers in India have seen a strong surge in demand, with October sales of Maruti Suzuki, Tata Motors and M&M surging to record highs.

Maruti’s total domestic passenger vehicle sales grew 176,318 last month, a 10% growth year-on-year, according to data from company disclosures. Tata Motors saw 27% growth to 61,134 cars while M&M witnessed a 31% growth to 71,624 units. Hyundai’s sales declined 3.2% to 53,792 units.