M&M cuts production by 20-25% due to chip shortage

Mahindra & Mahindra said it will cut its automobile production this month by 20-25% due to a shortage of semiconductors.

The company, like most producers, has been finding it difficult to source the chips required that carry out various functions within a car, such as controlling the engine/fuel flow, display boards and so on.

“The Company’s Automotive Division continues to face supply shortages of semiconductors, which has got further accentuated due to Covid lockdowns in some parts of the World,” it said today.

“Consequently the Company will be observing ‘No Production Days’ of around 7 days in its Automotive Division plants in the month of September, 2021, which is estimated to result in reduction in Production Volumes of the Automotive Division in September, 2021 by 20-25%. The Revenue and profitability will be impacted in line with the fall in production volumes. The Company is taking various cost optimisation measures to limit the impact,” it added.

It, however, added that the move will not have any “material impact” on the production ramp-up and launch plans of its high-end model XUV700 this month and the date of commencement of bookings for the new model will be announced soon.

The company’s tractor operations, exports, trucks and buses business and 3-wheeler production are unaffected by the above disruption, it added.

“As the situation is dynamic, the Company is carefully reviewing the supply situation and all efforts are being made to minimize the impact,” it added.

The shortage is the result of COVID-related disruption in production as well as a sharp increase in demand for certain products such as televisions and computers in the wake of COVID as well as due to the handing out of ‘free money’ by the US government to its citizens.

US citizens have been using the ‘free money’ to puchase items such as flat panel TVs, tablets, computers and automobiles.

All this has led to a sharp increase in demand for such goods, which has in turn led to a sharp increase in prices across the world, as well as congestion at ports in China and on the US west coast.

Container rentals too have shot up by 10x in the last six months due to the sudden demand for manufactured goods spurred by the ‘free money’ policy of the US government.