“No,” replies Jeetender Sharma, the engineer-turned-entrepreneur — who is the co-founder and managing director of Okinawa Autotech — when asked whether the recent spike in commodity prices has any immediate impact on the operations of the Gurugram-based company. Sharma was speaking at the launch of his company’s latest offering — the OKHI-90, a premium electric scooter touted to take on the likes of Ola Electric’s S1 Pro, Ather 450X and Bajaj’s iconic Chetak. Sharma also claims that deliveries will happen between 30 and 60 days. He reiterates in an interaction with Fortune India that the company will deliver on the promised timelines, and it remains largely unperturbed by the spike fuelled by Russia’s invasion of Ukraine.

Few in India’s automobile industry can speak from the pedestal Sharma speaks from. The industry is currently grappling with the double whammy of the increase in raw material prices and the supply chain disruption, along with the reeling effects of the semiconductor shortage induced by the pandemic. The prices of nickel, lithium and cobalt — key components in batteries used in EVs — have spiked post the geopolitical invasions, exacerbating the demand-supply equilibrium.

Russia is one of the world’s biggest suppliers of class-I nickel — about 17% of the world’s supply — which is used in making batteries in EVs. A disruption caused by the invasion caused nickel prices to increase rapidly, which culminated in nickel being suspended on the London Metal Exchange, after a 250% spike.

"The fallout from Russia invading Ukraine and the subsequent sanctions imposed by the United States and European governments has been a factor behind significantly elevated fears that nickel exports from Russia, one of the world's largest producers of mined and primary nickel, could be disrupted," said Jason Sappor, a senior analyst for S&P Global Commodity Insights.

Lithium carbonate, a key ingredient in making batteries, has also seen a fivefold rally in the past year, and according to Morgan Stanley, electric vehicle battery makers will need to raise prices by almost 25% due to soaring lithium carbonate prices.

This would hurt the maker of electric two-wheelers like Okinawa, as electric two-wheelers are touted to be the torchbearers of India’s electric mobility revolution. “ICRA estimates e2W penetration to touch 13-15% of new vehicle registrations by 2025, and 30% by 2030, translating to 2.5-3 million and 7.5-8 million-unit sales respectively,” remarks Shamsher Dewan, the Vice President and Group Head, Corporate Ratings, ICRA.

Electric two-wheeler sales witnessed over a 100% growth year-over-year in FY2022, supported by favourable cost of ownership narrative, improving technology, increase in FAME-II incentives and OEM push, a research note from ICRA reads.

Expectations from electric two-wheeler manufacturers are high to capitalise on India’s highly lucrative two-wheeler market, which is also seeing legacy OEMs falling out of favour. The two-wheeler industry posted a flat year-on-year performance in 11M FY2022, despite having a pandemic-impacted base year, according to estimates by ICRA.

“Commodity pressure-induced ownership cost inflation on the demand side and chip-shortages on the supply side remain key monitorable in the near-term,” the ICRA report remarks.

It also reads that inflation led by relentless increase in commodity prices, persistent increase in two-wheeler prices and expectation of fuel price hikes, coupled with moderation in budgetary allocation towards key income/ food schemes, may keep discretionary spending constrained in the near term.

Ola Electric, which has been at the forefront of India’s two-wheeler electrification, increased its price for its S1 Pro scooter during the next purchase window. Bhavish Aggarwal took to Twitter to announce the price hike. “Thanks to all who have purchased S1 Pro already, and special thanks to those who’ve bought their 2nd or 3rd S1 Pro. Last chance to get it for ₹129,999. We’ll be raising prices in the next window. This window ends 18th midnight! Buy now, only on the Ola app," reads the tweet. A request that sought explanation on this price hike was sent to an Ola Electric spokesperson, remains unanswered.

Ather Energy is also continuously monitoring the developing situation, and might further increase the price of its products if it is unavoidable. The company increased the prices of its products by ₹5,500 in January this year, citing higher input costs. The Bengaluru-based company recently inked a partnership with Bharat FIH, a Foxconn Technology group company, where Bharat FIH will manufacture printed circuit board assemblies for battery management systems, dashboard assembly, peripheral controlling units, and drive control modules. It will also manage the procurement of raw materials and the supply-chain logistics.

A tough 2022 for India’s passenger vehicle market

“The next six months to 12 months are going to be crazy, for everyone,” Rajeev Chaba, the president and managing director at MG Motor India, tells Fortune India. The British brand under Chinese owners is going to launch a new EV next year, which is touted to take on Tata’s Nexon EV. The company had acquired the now-defunct GM India’s manufacturing facilities at Halol in Gujarat, and is ramping up production.

“The project should be finished in the next two months. We inherited a manufacturing capacity of 75,000 units annually, and we are now looking at a capacity of 120,000 units annually,” Chaba adds. It sees huge demand for its products but the semiconductor shortage and disruption in the supply chain has deterred them from fulfilling that demand. “Currently we’re getting 1,400-1,500 orders per month, but we are only able to supply only 250 to 400 orders per month, now onwards,” Chaba explains.

Ever since the industry was hit by the semiconductor shortage, it has been subsumed into the realm of uncertainty. “Frankly no one knows the answer to this pertinent question — when will it get over. We all have struggled for the past two years. This year, when we thought the worst of the pandemic was behind us, we were hit by these new geopolitical escalations. It also caused major disruptions in the shipping industry,” Chaba avers. He also adds that there is huge pressure to maintain costs, and the availability of products in time. “Nobody knows how it will pan out,” he remarks. According to Chaba, automakers will have to trudge carefully to circumvent the triad of problems — the semiconductor issue, the commodity price spike issue, and the shipping disruption issue, in the short term.

MG Motor India had hiked the prices of its cars in January, and is also planning to hike the price of “one or two products” in the month of April, according to Chaba. Several automakers have been passing on the price hike to consumers — with Tata Motors, (which emerged as an early leader in India’s nascent electric car market), also hiking the price of its Nexon EV by ₹25,000. Shailesh Chandra, who heads Tata Motors’ electric mobility operations, has said that the cost of battery cells — the most expensive component of an EV — has spiked by 20%, and the company is under pressure in the near-term. According to Chandra, the price of battery cells will remain high for a year, before mellowing.

It is also understood that Tata Motors will offset some of the cost incurred by increasing its localisation levels — something which most automakers are pivoting towards, two or four wheelers. When Sharma of Okinawa was asked how is the company shielded from the crisis which hitherto has jolted the auto industry, he claims that Okinawa learnt during the initial days of the semiconductor shortage that sourcing components locally has helped the company keep up with the demand. Even Jeep, one of the many brands under the Stellantis fold, claims that it has maintained volumes due to high level of localisation. Speaking on the unveiling of Jeep’s Meridian, Roland Bouchara, the CEO and managing director at Stellantis India, tells that it has achieved 82% localisation for its latest offering, but remarks that any sales projection would be difficult because, “Covid-19 is still not behind us".

A bumpy ride ahead for auto ancillaries

Auto ancillaries are said to bear the brunt of the recent spike in commodity prices. “The industry continues to witness earnings pressure in the near-term given the elevated input prices and inflation in other operating costs like freight. Key headwinds impacting demand include softened OE demand in the two-wheeler segment amidst higher ownership costs and subdued rural sentiments on the back of delayed harvesting and uneven monsoons, and supply concerns in passenger vehicle segment due to semiconductor shortage issues,” Dewan adds. ICRA also expects higher working capital requirements for auto ancillaries over the next few months.

“We try to curtail costs; we use some different materials, if that is possible at all,” says Guruprasad Mudlapur, the managing director of Bosch Automotive India, in a conversation with Fortune India. By and large, the company is passing on the increased costs to its customers. Mudlapur believes that Bosch and the ilk are not as severely affected by the inflated input costs as the OEMs.

“The amount of material whose price has increased manifold over the last year used by an OEM is a lot more than an auto component-maker like us. So, the impact is far bigger for them,” Mudlapur explains. However, he believes that inflated costs will remain only for this year, and it will come down by 2023. It may be noted that Bosch was one of the auto part makers which were selected for the Product-Linked Incentive (PLI) scheme.

“We are working to have a robust inventory management system and also are strengthening our relationships with global chip suppliers and distributors to improve allocations. For semiconductor chips, schedules/forecasts are released to our distributors/suppliers for 12 to 15 months,” NK Modi, Executive Director, Minda Corporation tells Fortune India.

“Wherever required non-cancellable and non-revocable (NCNR) orders are also released,” he adds. Modi acknowledges that there are certain supply chain and logistical challenges, too, particularly while importing parts other than electronics. “Keeping those in mind, we are placing orders with suppliers for N+4 months and have also increased the inventory levels. These are all business decisions taken to ensure and meet OEM customer needs,” he tells.

As part of Minda’s uncertainty management strategy, it has conducted several Value Addition and Value Engineering (VAVE) workshops around cost optimisation, and adopted a policy of structured cost management drive to make the processes more resilient. “To further improve coordination and management, tripartite meetings are held with our suppliers and customers from time to time which has certainly helped in managing the supply chain better in these challenging times,” he adds.

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