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Tata Motors on a treacherous path as global semi-conductor shortage sustains

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Tata Motors seems to be walking on a treacherous path amid the global semi-conductor shortage and recently lockdowns in China. The situation is at a point when Tata Motors’ production may be hampered in some or all of its plants if it is unable to ensure the supply of critical parts from the country. The shortage has adversely impacted the production and sales of Jaguar Land Rover units during 2021-22. The homegrown auto major made these observations while elaborating on the risk factors in a filing with the US Securities and Exchange Commission.

N. Chandrasekaran, Chairman of Tata Motors, said the situation has not improved despite many remedial plans enacted by the company. According to an official statement issued by Tata Motors, “Chip shortages may impact us more than our competitors as they may have a greater level of buying power with suppliers or have a different range of features on their vehicles that are dependent on semiconductors. We are also witnessing a temporary decrease in demand. These lockdowns in China have also led to some dealerships there to temporarily close, which may have an adverse impact upon our sales outlook in fiscal 2023, as well as impact on our ability to divert the supplies on lower end models, in which our competitors exclusively operate or for which our competitors are able to better manage supplies.”

Tata also mentioned that thought it can be expected that the shortage may ease through FY23, the industry can’t be given any assurances. Plus, this will also put the industry at a high risk of supply chain shocks until the shortage is completely evaded. It will have a negative impact on production volume, revenue and profitability, customer satisfaction and reputation.

“As the transition to electrified vehicles continues the skills, processes and technologies required to ensure continuity of supply will change, so securing these supply chains is business critical. Raw materials comprise almost 65 per cent of our total costs. If we are unable to find substitutes for such raw materials or pass price increases on to customers by raising prices, or to safeguard the supply of scarce raw materials, our vehicle production, business and results from operations could be materially affected”, Tata Motors statement cited in the risk factors.

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