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Automobiles

Indian automakers face parts shortage as China epidemic hits supply chain

SUV maker Mahindra warns component shortage may delay shift to new emission norms

Workers assemble a Tata Tiago car inside the Tata Motors car plant in Ahmedabad, India.   © Reuters

MUMBAI (NewsRise) -- Indian automakers are bracing for a shortage of components as the coronavirus outbreak in China hinders supplies to an industry battling to come out of a prolonged slowdown.

The outbreak of the deadly virus has sent global financial markets into a tizzy as a lockdown in China is feared to trigger a serious supply disruption to many parts of the world. The virus, which first appeared in the Chinese city of Wuhan, has already claimed 636 lives in the mainland, spreading to two dozen countries.

The shutdown in China poses fresh challenges to India's automotive industry as companies in the south Asian country depend on several Chinese suppliers for components. The disruption comes at a time when automakers are struggling to boost demand with new models. Car sales in India dropped a record 19% last year as consumers remained wary of making purchases in a slowing economy, according to the industry body the Society of Indian Automobile Manufacturers.

"In the next few days, if it (the outbreak) is not contained, then it will be a concern, especially for vehicles that use more imported components," said Harsh Kale, president of the Federation of Automobile Dealers' Association.

Earlier this week, South Korea's Hyundai Motor announced that it is suspending operations in three plants in China due to parts shortage.

On Thursday, Mahindra and Mahindra, one of India's top sport-utility vehicle makers, said a component shortage may adversely hit production of certain vehicles and potentially delay India's shift to a new emissions standard. The country is set to shift to the less-polluting Euro VI fuel norms by April. Most manufacturers are in the process of making the final transition, while any shortage in components may jeopardize the shift.

"For Mahindra, there are some tier-2 parts that come from China, which right now is a supply constraint for us," Managing Director Pawan Kumar Goenka said in an interview to Bloomberg. "We have some concern if supplies don't restart next week."

If the supply of parts continues to be affected for a few more weeks, Mahindra may have to seek an extension for meeting the new emission norms deadline for factors "out of our control," Goenka said.

Last month, Tata Motors warned that the coronavirus outbreak may damp the financial performance of its British luxury unit Jaguar Land Rover in the current quarter. Representatives at Tata Motors, Mahindra and Mahindra, and Hyundai Motor India weren't immediately available for a comment.

India's Road Transport Minister Nitin Gadkari, however, has said the country is on track to shift to the new emission standard as planned, from April 1. The industry's resisting the transition to new standards as they fear that demand may further weaken in an already slowing economy.

"It's a difficult transition," FADA's Kale said. "It is a transition which is happening for the first time and during the slowdown."

On Wednesday, India Ratings and Research downgraded the outlook on the automotive sector to negative from stable for the fiscal year 2021. The ratings agency blamed slowing sales amid macroeconomic headwinds that is leading to weak consumer sentiments.

Shares of Mahindra fell 2.9% in Mumbai trading, while the benchmark S&P BSE Sensex closed down 0.4% on Friday.

-- Rituparna Nath and Dhanya Ann Thoppil

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