Skoda Auto Volkswagen India invokes force majeure in India due to chip shortage

Skoda Auto Volkswagen India (SAVWIPL) has invoked a force majeure clause to its suppliers owing to a shortage of semiconductors, becoming one of the first automakers in India in the recent past to resort to the move since the acute shortage of the micro- processor chips started easing after peaking in August 2021. Force majeure is an unforeseen event or circumstance that prevents a company from fulfilling its contractual obligation.

In a circular (dated 22 February) addressed to the supplier partners the company highlighted that the automobile industry is still facing supply issues of parts. ET has seen the copy of the circular. An email sent to the SAVWIPL spokesperson on Saturday remained unanswered till press time.

SAVWIPL said, it is also facing constraints on shortages of semiconductors due to unforeseeable and unavoidable circumstances. The lack of supplies prevents the company from carrying on the planned production activities and may adversely impact the supply schedules released by the company to the suppliers. It may also result in cancellation of shifts at the last instant, it cautioned. “Despite our best efforts in mitigating the supply issues, we are constrained to reduce the production volume,” the letter said.

The company is faced with a semiconductor shortage at a time when it’s planning to scale up volumes across the brands. In a recent interview to ET Piyush Arora, managing director and CEO at SAVWIPL had said that the owner of Skoda, Volkswagen, Audi, Porsche brands is looking at a double-digit year-on-year growth.

It also comes even as Volkswagen is re-aligning its focus globally and has identfied India as an important market in the face of the growing geopolitical tensions and complex regulatory environment.

“We are turning our attention to India to be more robustly positioned in this new world,” Bloomberg reported last week quoting Arnold Antlitz, chief financial officer, Volkswagen AG. Having been through a phase when semiconductor shortage had crippled production in a big way, most automakers remain cautious in their outlook. While they maintain the worst is over and availability is improving, they concede the shortage is far from over and they remain vigilant.

However, none of them have invoked force majeure. “Unlike, Suzuki or Hyundai for which India is a priority market on account of a large footprint here SAVWIPL’s smaller footprint may have made it tough for the India subsidiary to get its allocation of semiconductors at a competitive price. This would have forced the company to invoke the clause,” said an industry observer.