7th July witnessed something completely unprecedented and uncalled for as for a second consecutive day, the prestigious commercial giant of India, Tata Group of Industries saw a steep decline in their share prices hitting the 10% lower circuit. This although seemed completely normal for the share prices felt out of place when considering the fact that it was related to the pricing of the shares of Tata Motors. A spokesperson for the company claimed that a chip shortage was to be attributed for the share price drop. He further clarified that the fluctuations in the chip shortage are very dynamic in nature and hard to predict due to which they were completely blindsided by the sudden shortage of the semiconductor chips. Further talks with their suppliers have had the strategists conclude that the chip shortages in the September quarter of 2021 will be worse than the current one if the situation prevails and that additional supplier relations are being formulated and manufacturing capacities are being re-evaluated to mitigate the impending crisis as it would also cause a decrease in the manufacturing capacities of Tata Motors. Although the logic behind the spokesperson’s reasoning feels sound, the underlying flaw in the logic seems to stem from the fact that Tata Motors is a very small contributor to the overall fortune of Tata Group of Companies so there seems to be a small inconsistency in the statement saying that due to the shortage of a component of manufacturing used by Tata Motors alone, the entirety of Tata had their share prices dropped. The substantial fluctuations in the chips were due to the pandemic and the increased use of semiconductors in the advanced vehicles. The pandemic has showcased many of the major automobile brands such as Mercedes-Benz, BMW, Porsche & Volkswagen to reveal their plans for the Electric Vehicle line-ups for the coming year due to which there has been a drastic increase in the chip demands for these vehicles. Looking at all major players making the transition initiations this year, it is safe to assume that JLR(Jaguar Land Rover) might try to ramp up production of its EV line-up and hence could have caused the shortage. The shortage was to happen as chip manufacturing is a very complex process with lead times that can go up to 26 weeks at times and with the pace that the major automobile manufacturers are looking to push their EV line-ups for this year, it has shown a sudden and quick increase in the demand which the market is generally not equipped to handle for now. Hence the company has gotten into talks with its major suppliers to ramp up production and avoid any such incidents in the future. Thank you.
Regards,
Snehal Wagh,
Kautilya,
IBS Mumbai.
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