Rising cases of coronavirus infections at automotive clusters are threatening India’s automobile industry at a time when companies are starting to claw back to normalcy after a protracted lockdown.

In Maharashtra’s Aurangabad district, authorities will implement a complete lockdown from Friday following a flare-up in coronavirus cases. This will force a halt in the supply of automobiles and parts to other parts of the country, said executives at several large auto ancillary firms in Aurangabad.

Aurangabad is one of India’s major automotive hubs, housing factories of Bajaj Auto and Skoda Auto India as well as a well-developed ecosystem of auto ancillaries.

“Every two-wheeler manufacturer is dependent on the vendor ecosystem based in Aurangabad for some part or the other. The Bajaj Auto supply chain practically supplies to all major OEMs (original equipment manufacturers)," said a senior executive at a tier-1 vendor, requesting anonymity. “We are trying to produce as much as we can in two shifts. We are building up the stock. But it is not easy to ramp up amid labour concerns," the executive said.

Aurangabad has reported about 7,000 coronavirus cases and about 300 deaths. In Bajaj Auto, more than 300 workers have tested positive and six have died since the outbreak.

Coronavirus cases were also discovered at factories of Toyota Kirloskar Motor, Hyundai Motor India Ltd and Maruti Suzuki India Ltd in Karnataka, Tamil Nadu and Haryana. The impact on production was, however, limited as there were fewer cases. Automakers resumed production after sanitizing entire factory premises and conducting contact tracing among employees.

“It’s a cluster problem and if there is a rise in covid cases in the vicinity of the factories, then the people working at the factory are also getting infected," said a senior auto industry executive. “Overall cases in Aurangabad have increased in the past few weeks, and that’s why Bajaj’s workers got infected as well. Most manufacturers are, as a result, very cautious in ramping up production."

Indian automakers have been mostly using just about 40% of their total capacity amid various issues, including labour scarcity, weak demand and the need for social distancing at vehicle assembly lines. The issue has become amplified with ancillaries also facing the threat of rising infections and labour shortage, affecting their ability to meet demand forecast from the OEMs.

Rahul Dhoot, managing director, Dhoot Transmission Pvt. Ltd, a tier-1 supplier of wiring harness to Bajaj Auto among several other companies, said shuttering factories will create a supply-side shock for the auto industry. “Complete lockdown has a cascading impact on the supply chain. It affects the customers who are located outside of Aurangabad. We supply to 6-7 customers based elsewhere from our production units in Aurangabad. If we are not able to supply parts to them in time, then their assembly lines will come to a halt," Dhoot said. Dhoot Transmission has seven plants in Aurangabad, of the total 19 across India.

One of the seven plants in Aurangabad caters only to exports. “It takes months and years to build up a customer and minutes to lose them," said Dhoot, adding that failing to supply parts in time means customers will look at developing other vendors, which is a threat.

A spokesperson at Varroc Engineering Ltd, a key vendor to Bajaj Auto and Tata Motors Ltd, said the company has over 3,000 employees in Aurangabad and each one is free to stay at home in line with the company’s leave policy. Varroc has 10 plants in the city.