The global shortage of semiconductors, or chips, that had rattled automobile production and sales in India through fiscal years 2021 and 2022, as well as a large portion of fiscal 2023, is easing, with supply-chain glitches being addressed and improved predictive demand forecast enabling better production schedules, according to CRISIL reports.

As per the report, demand-supply dynamics are expected to be more balanced by fiscal 2026, with additional global manufacturing capacity set to become operational.

Chips have distinct electrical properties that make them the foundation of all electronic devices and equipment. The computer and communication equipment (C&C) segment consumes roughly 63% of all chips produced, followed by automobiles (13%), and consumer and industrial segments (12%).

Passenger vehicles (PVs) consume the most chips, about 1,500 on average, of any automobile type. As more advanced electronic features are incorporated, the chip requirement grows. Electric photovoltaic (PV) systems use nearly twice as many chips as ICE PVs.

Recently, improved supply and slowing demand for computers and mobile phones have resulted in the reallocation of chip supplies to other segments, most notably automobiles.

"The chip shortage that Indian passenger vehicle manufacturers are experiencing is alleviating, with current availability at 85-90% of total requirement." "The production loss due to chip shortage, which had been halved to approximately 3,00,000 PVs on-year in fiscal 2023, is expected to have further declined to under 2,00,000 PVs by the end of September 2023," says Anuj Sethi, Senior Director, CRISIL.