'Further coronavirus outbreak to impact auto supply chain'

February 15,2020

Supply chain of auto components could be impacted, if the coronavirus outbreak extends, a brokerage report said on Friday.

According to Emkay Global Financial Services, India OEMs source a small portion of the component requirements from Chinese vendors.

"Components are mainly electronic parts such as PCBs, Sensors, ECUs, Fuel systems, EV components, etc, and are supplied from production sites such as Guangdong, Yangtze River delta, Sichuan and Shaanxi, which are away from the Epicenter," the report said.

"Although Chinese suppliers represent only a part of the supplies and other sources exist, there could be delays in the activation of alternative supply-chains and increase in costs for Indian OEMs, at least in the near term, in our view."

On the flip side, the report said that global commodity correction could be positive for battery, tyre companies.

"In the near term, the reduction in 'Lead' prices can positively support margins for battery companies... even after assuming 75 per cent pass-through in replacement and industrial segments," the report said.

"Meanwhile, tyre companies... can benefit from a reduction in the prices of crude derivatives by up to 60 bps, after assuming 75 per cent pass-through in the replacement segment. An increase in steel prices could marginally impact the margins for CV and tractor OEMs, while the impact is expected to be more than offset by lower 'Aluminum' prices for 2W OEMs."

The novel coronavirus originated in Wuhan at the end of 2019. The overall death toll due to coronavirus increased to 1,380 in China at the end of last Thursday, with 63,851 confirmed cases.

The new virus, which is of the same genre as SARS which broke out in 2003 but has spread at a much faster pace, was first reported in the WHO Disease Outbreak news on January 5. It has progressively spread across many countries from its epicentre in Wuhan.

In a bid to curb the spread of the virus, Chinese authorities have closed transportation services across many parts of the country, including Wuhan.

Many factories producing auto parts, electronics components and even activated pharmaceutical ingredients have been shut to contain the spread of the virus.