AI Data Centre Boom Quietly Squeezes Auto Sector Margins
The artificial intelligence revolution's insatiable appetite for infrastructure is creating significant spillover effects across industries, with automakers now feeling the pinch as commodity prices surge. The automotive sector's commodity woes appear increasingly linked to explosive growth in AI infrastructure, creating intense competition for critical materials.
Maruti Suzuki Flags Margin Pressure
Maruti Suzuki India, the country's largest passenger vehicle manufacturer, has flagged margin pressure from rising costs of metals such as aluminium and copper, pointing to competition from AI-driven demand as a contributing factor. In its latest quarterly results, Maruti Suzuki reported that operating profit margins declined to 8.1% of net sales in the third quarter of fiscal year 2026, down from 8.4% in the previous quarter.
The company attributed a substantial 60 basis points of this compression directly to adverse movements in commodity prices, particularly platinum group metals (PGMs), aluminium, and copper. Rahul Bharti, senior executive officer for corporate affairs at Maruti Suzuki, stated: "We are seeing some kind of headwinds in commodities at the moment in platinum, palladium, rhodium and aluminum and copper. And some of these are also being discussed across sectors. Some of these have to do with the AI memory chips etc. also."
Hyundai Also Feels the Pinch
Hyundai Motor India Ltd, which announced a minor price increase across its model range from January 1, had cited rising input costs as a trigger. In a regulatory filing, the Korean auto major stated that the increase is driven by higher costs of precious metals and other commodities used in vehicle manufacturing. The company noted that sustained inflationary pressures on raw materials had impacted overall production costs.
AI Infrastructure Creates Material Competition
Data centres powering AI applications require massive amounts of copper for electrical systems and aluminium for cooling solutions, creating intense competition for these materials. Aluminium prices in India rose to a record high of Rs 361.25 per kg on Thursday (January 29), while copper prices hit a fresh peak of Rs 1,480.3 per kg.
For automakers like Maruti Suzuki, the impact is multifaceted:
- PGMs – which include platinum, palladium, rhodium, ruthenium, iridium, and osmium – are frequently used in automotive catalytic converters that reduce harmful emissions
- Modern cars use significant copper in electrical systems, with demand accelerating as vehicles incorporate more electronics and electrification
- Aluminium is increasingly favoured for body panels and structural components due to its light weight, which improves fuel efficiency
Chip Supply Concerns Emerge
In a report earlier this month, UBS analysts said that the explosive growth of AI data centres is creating a severe bottleneck in dynamic random-access memory (DRAM) chips, which could potentially disrupt vehicle production as early as the second quarter of 2026. The issue stems from DRAM manufacturers prioritising high-margin AI server contracts over automotive applications, leaving carmakers vulnerable to supply constraints. Carmakers had faced a similar chip shortage during the Covid-19 pandemic.
Copper Demand Accelerates
While copper is the enabler of electrification, being essential for the generation, transmission, and distribution of electricity, the accelerating pace of electrification is an increasing challenge for the metal. The biggest driver of growth for copper now is AI and data centres, which has introduced a new, rapidly expanding vector of copper demand.
Data centres are electricity-intensive, and their proliferation is driving massive investments in both direct copper use (for power delivery, cooling, and IT infrastructure) and in the electric grid infrastructure that supports them. This demand was not even anticipated five years ago.
Global Electricity Demand Surges
According to ratings agency S&P Global's base case, global electricity demand will increase by nearly 50% by 2040. And this surging electrification is advancing around the world:
- In the US, electricity consumption that was largely flat is now beginning to grow at what could be 2.5% annually
- In China – with an electricity market more than double that of the United States – it will grow at 3.2% per year between now and 2040
- In India, it will be 4.2% per year
Apart from AI, there are traditional demand centres including:
- Appliances such as air conditioners and computers
- Construction and manufacturing, which is growing constantly
- Energy transition and addition including EVs and renewables
- The defence sector, where growth is being triggered by rising geopolitical tensions and the electrification of military systems
The intersection of AI infrastructure growth and automotive manufacturing needs has created an unexpected competitive landscape for critical materials, with automakers now navigating new challenges in their supply chains and cost structures.
