New Delhi: India’s automakers could be heading toward another semiconductor supply squeeze—this time triggered by the artificial intelligence (AI) boom. As toward high-bandwidth memory (HBM) for AI data centres, supplies of conventional memory chips used in vehicles are tightening, driving up prices and raising supply risks for the industry.
This could mark the third major supply disruption for the auto industry in recent years, after the triggered by China’s restrictions last year, and the global semiconductor shortage during the covid pandemic years of 2020-22.
At least two industry executives said that if supply pressures persist, automakers may start facing shortages by the end of the next financial year (FY27).
“Internal estimates suggest that the supply crunch will get serious towards the last two quarters of the next financial year, which is why there is a rush to prepare now,” one of the executives mentioned above said on the condition of anonymity.
The issue was earlier flagged to analysts by Mahindra and Mahindra Ltd (M&M), which makes electric cars, and e-two-wheeler manufacturer Ather Energy Ltd.
“Memory chips are something that is a supply chain risk/price sensitive thing because shortage obviously is driving premiums in memory chips,” M&M executive director Rajesh Jejurikar told analysts and investors on an 11 February earnings call. “So, a memory chip is something which is a watch-out across the portfolio right now. That’s the new rare, rare earth, let’s call it that.”
However, Jejurikar assured that the situation was currently under control. “We are buying in the market, we are paying a premium and we have a set of mitigating actions,” he said. “We are covered in the short run but it’s almost like going back to semiconductors of covid… the risk could be quite severe.”
Then, last week, during a meeting with analysts of Nuvama Institutional Equities, Bengaluru-based Ather Energy’s management highlighted memory chips’ inflation owing to supply crunch as one of the near-term headwinds to the business.
Queries sent to automakers Maruti Suzuki, Tata Motors PV, Hyundai Motor India, Ola Electric, Hero MotoCorp, Honda Motorcycle and Scooter India, Bajaj Auto, TVS Motor Company and auto suppliers like Samvardhana Motherson, Sona Comstar, and Bosch remained unanswered till press time.
Manufacturers such as Micron Technology in the US and South Korea’s Samsung and SK Hynix have started focusing most of their manufacturing lines on making HBM chips, used in graphic processing units that Nvidia sells for AI data centres.
“There is definitely a shortage of DRAM and NAND chips (memory chips used in vehicles) in the market, which is likely to affect the automotive industry all through 2026, and at least partially in 2027 as well,” Ashok Chandak, president, India Electronics and Semiconductor Association, said.
“This could also be amplified by large tech firms pushing chip supply chains to cater to their AI demand, and large industrial conglomerates over-ordering and advance-ordering memory chips for industrial uses, which could affect small auto firms,” he added.
The older generation chips, used by automakers, are not being prioritized for production, which is leading to a supply crunch and high prices.
Memory chips in vehicles, while minuscule in share of overall content, are nonetheless critical as they help in storing and accessing data, and are used in infotainment systems, advanced driver assistance systems (ADAS), engine control units, and battery management systems, among others. A shortage of such chips risks putting vehicle production out of gear.
“With the current supply chain catering heavily to HBM chips, the market is skewered because HBM chips have much larger die sizes, lower yields, and require advanced packaging, which means that they take longer to make,” Kanishka Chauhan, senior principal analyst of emerging trends and technologies at Gartner, said, adding that HBM chips are also more expensive and provide better margins and returns for chipmakers.
“Over time, there is likely to be a concerted push to move industrial systems to newer generation memory chips, which is in line with the cyclical process in which this industry works. Until this cycle resolves, there is likely to be a cycle of supply shortage for all kinds of memory but especially the legacy memory chips, which in turn could affect various parts of the downstream industries,” he added.
Even as suppliers have begun to urge auto manufacturers to upgrade vehicle technology architecture to support newer-generation chips, industry executives and experts suggest that the effort has already begun.
“For automakers, this increases the urgency to upgrade their electronic and software architecture,” Harshvardhan Sharma, group head of automotive technology & innovation at Nomura Research Institute Consulting & Solutions India, said.
“Moving toward centralized or domain-controller architectures allows OEMs (original equipment manufacturers) to use more advanced chips efficiently and reduce dependence on a large number of lower-end components,” Sharma noted, adding that a typical memory chip content in a vehicle is still relatively modest, typically $10-20 in entry-level vehicles and up to $40-80 in more advanced ones.
An upgrade to vehicle technology systems can allow companies to achieve two things, as per experts and executives. One, they can use the widely produced next generation chips. And second, they can reduce the number of chips required, which can ease supply pressure.
