Apanese chipmaker Renesas and India's Tata Motors have formed a strategic partnership to design, develop and make semiconductor solutions, the firms said on Wednesday.
The move comes as a persistent global shortage of semiconductor chips has hobbled the automotive and electronics industries, among others, forcing production cutbacks, while highlighting global dependence on a few sources, such as Taiwan.
The companies said they will jointly develop and manufacture a range of electronic control units, JTWhatsApp power semiconductors and sensors for automobiles.
"The partnership will address the global demand for advanced semiconductor solutions through local manufacturing in India," Tata Motors said in a statement.
"Together, we aim to expand our product portfolio to address the growing needs of our customers, while delivering cost-effective solutions," Renesas Electronics Corporation president Hiroyuki Tanaka said in the statement.
Renesas, which has a design center in India, said it will transfer technology and manufacturing expertise to Tata Motors.
The partnership will focus on the development of electronic control units for the Indian market, including for electric vehicles.
"We are confident that this strategic partnership with Renesas will help us to strengthen our competitiveness in India and also globally," Tata Motors president and chief executive Guenter Butschek said in a statement.
The firms did not disclose financial terms of the deal.
Global demand for semiconductors is increasing at an average rate of 7 percent annually, with automotive chip demand set to rise by 20 percent annually over the next three years, according to industry body SEMI.
In 2013-2014, global semiconductor sales totaled $333 billion, according to SEMI data- Askmodapk
The Indian automotive market is projected to grow at a compound annual growth rate of 12 percent between 2013 and 2020, according to Frost & Sullivan.
The country's auto market, the 11th-largest by volume in the world, is dominated by small cars such as Maruti Suzuki's Alto 800 and Tata Motors' Nano.
By 2020, India's passenger car market is expected to be worth $60 billion.
Tata Motors, which has been looking for a partner for its electronics business since exiting a joint venture with Hitachi Ltd in 2009, had previously partnered with Germany's Continental AG and South Korea's Samsung Electronics Co Ltd in that line of business.
The company, which has been looking to sell its loss-making British luxury unit Jaguar Land Rover, also said it would split into two listed entities - one comprising the group's Jaguar Land Rover and European operations and the other for its domestic business.
The move is aimed at simplifying Tata Motors' structure and unlocking value for shareholders, the company said in a statement.
Reuters reported in May that the company was planning to spin off its loss-making Jaguar Land Rover unit.
Tata Motors has been selling its foreign assets to raise funds and focus on the domestic market. It sold a controlling stake in its Spanish commercial vehicle unit to China's Cenat in 2010 and is in the process of selling its stake in Korea's Tata Daewoo Commercial Vehicle Co Ltd.
Tata Motors has also said it was looking to sell its luxury Jaguar Land Rover (JLR) unit, which posted a record loss of 1.05 billion pounds (US$1.62 billion) for the year ended March 31, after losing market share to rivals including BMW and Daimler's Mercedes-Benz.
The company has appointed Bank of America Merrill Lynch as an advisor for JLR and is working with Credit Suisse on a possible sale, two sources familiar with the plans told Reuters earlier this month.
In 2010, Tata Motors announced that it would invest $1 billion over three years to launch 10 new passenger vehicles in India by 2015 as part of a plan to boost sales by almost 50 percent by then. The plan included five cars and five trucks. In 2011, it launched Sienta compact sedan and Indigo eCS hatchback – both priced at less than Rs 4 lakhs but did not meet with much success due to poor marketing strategy adopted by Tata Motors .
