The AI data centre boom is quietly squeezing auto sector margins

“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,” said Rahul Bharti, senior executive officer for corporate affairs at Maruti Suzuki.

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 had 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 infra boom

The automotive sector’s commodity woes appear increasingly linked to explosive growth in AI infrastructure. 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. A rise in the AI data centre boom has also resulted in significantly higher prices of memory chips for regular customers.

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.

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 price surge

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.

This 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 infra) and in the electric grid infrastructure that supports them. This demand was not even anticipated five years ago.

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 the traditional demand centres: appliances such as air conditioners and computers to construction and manufacturing, which is growing constantly; then there’s energy transition and addition including EVs and renewables. There is also the defence sector, where growth is being triggered by rising geopolitical tensions and the electrification of military systems.