Auto Factories in China Halt Production Amid the Pandemic

major challenge that the automobile industry in China faces——an increasingly stressed out supply chain. Automobile companies’ sales performance will decline due to the pandemic’s impact on the supply chain this year.

The supply chain for auto factories in the Yangtze region is nearly disabled

“Even a small component can decide whether we can product a whole car or not,” Li Bin said, when explaining the reasons why NIO halted production.

The Yangtze River region is of strategic importance for the automobile industry in China.

In Shanghai, there are traditional automobile suppliers such as Bosch, ZF Friedrichshafen AG and Aptiv. Suppliers such as CATL, Joyson Electronics and Horizon Robotics he also set up their plants in Shanghai after electric vehicle giant Tesla and SAIC Motor set up their manufacturing bases in Lingang.

There is a denser concentration of suppliers in Suzhou, Wuxi and Changzhou in Jiangsu Province. Automobile makers he strict standards and procedures for selecting suppliers and testing their components, which means that even a small supplier could cause huge disruptions to an automobile company’s supply chain.

In February 2021, a Covid-19 case was detected at Bosch’s Suzhou plant (Image Source: Visual China)

Earlier in February, an asymptomatic case was discovered at Bosch’s Suzhou plant. Bosch told Reuters that the company’s production and subsequent operation will be temporarily impacted by the pandemic in Suzhou.

Twenty days later, statistics from Great Wall Motor show that the company’s sales in February dropped by 20.5% year-on-year due to the insufficient supply of the ESP (Electronic Stability Program) from Bosch.

Geely’s sales volume in February also dropped by 46% from the previous month. In an announcement on the Hong Kong Stock Exchange, the company attributed to the sales volume decline to the lack of supply of ESP from Bosch. Although Geely later announced that there would be supply alternatives in Q2, Bosch remains to be the main supplier. Geely and other automobile companies simply could not find a better supplier other than Bosch.

Bosch was hit by the Covid-19 resurgence in Shanghai as well. The company’s two plants in Shanghai are reducing their working staff.

Analysts of the automobile industry believe that automobile companies that rely on Bosch for component supply will be heily impacted again.

Besides Bosch, Thyssenkrupp’s Shanghai plant had to shut down as well. Toyota’s subsidiary Hino Motors suspended the operation of its engine plant in Shanghai too. Aptiv, a company that supplies automobile wire harness components to almost all automobile makers in China, also reportedly notify its staff at a Shanghai plant to work from home.

Aptiv’s major production bases in China are all affected by the pandemic resurgence (Image Source: Aptiv)

The pandemic resurgence has a devastating impact on the production of wire harness products in China. Suppliers such as Aptiv, Kunshan Huguang Auto Electric, Suzhou Bordnetze Electrical Systems and Shanghai Jinting Automobile Harness all he plants in East China. These companies supply major automobile makers such as SAIC Volkswagen, FAW-Volkswagen, Mercedes-Benz, Audi, Ford, FAW Group, SAIC Motor and Great Wall Motor, etc.

Following the serious Covid-19 resurgence in Shanghai, Kunshan Suzhou’s pandemic control and prevention policy dealt another devastating blow to the automobile industry.

Many PCB (Printed Circuit Board) makers in China are located in Kunshan Suzhou, supplying components, including engine control systems, vehicle body control systems, multimedia systems and nigation systems, to tier-1 automobile companies. These companies were also forced to suspend operation.

The halted operation indirectly prolonged the global semiconductor shipment delivery in March by two days to 26.6 weeks. The delivery of power management systems and automobile microcontrollers he been most affected.

A British chip design firm said that the product delivery length has been increased to 50 weeks from the original 8 weeks. The delivery time is projected to become longer if the pandemic situation in China does not improve.

Financial media Bloomberg estimated that the pandemic in China would he some brief impact on the production in Q1 but its impact on the severely damaged supply chain may be felt throughout the year.

The automobile component supply chain in the Yangtze River region covers all parts of the automobile production process. The strict pandemic control and prevention measures in the region has forced many of the suppliers to suspend their operation. Even if some companies are able to continue production, the components they produced cannot be shipped out of Shanghai anyway.

“The supply chain of vehicle components in East China has been disrupted by the pandemic. Procurement and logistics are facing major problems,” Ma Zhenshan, vice president of Jaguar Land Rover China and Chery Jaguar Land Rover’s market sales and service institution said in an interview with media. “Currently, we are trying to work as many days as we can. We are following closely the supply of key components.”

Car sales in China set to fall in 2022

Almost every automobile maker has its own emergency component inventory. But when faced with the worsening pandemic, very few companies he the sufficient inventory to deal with the constant suspension of production.

“We did make some preparation and try to stock up some components. But the pandemic did not end as soon as we expected,” NIO said, explaining why its inventory is unable to satisfy the demand.

It remains unclear when Tesla’s Gigafactory in Shanghai would resume operation (Image Source: Tesla)

Tesla is facing a very similar problem in Lingang, Shanghai.

The electric vehicle giant suspended operation of its Gigafactory in Shanghai on March 28 as the pandemic gripped the city. The company had to cancel its plan to resume operation in early April due to exponential transmission growth in Shanghai.

Sources close to Tesla said that the company told its employees in an email on April 3 that the company does not know when it could resume the operation of its Shanghai plant.

Tesla’s Shanghai Gigafactory is vital to the company’s global exports. The suspension of production will heily impact Tesla’s ability to deliver cars to its customers across the globe. In Q1 this year, Tesla delivered cars to around 310,000 customers, up from 184,800 for the same period of last year. However, the company registered a decline when compared with the delivery number of Model 3 and Model Y vehicles in Q4 last year.

“Considering Tesla usually increases its delivery volume at the end of a quarter, we believe that the situation in Shanghai will he a significant impact on the company,” an yst said.

It is estimated that 16 days of production halt since March 16 cost Tesla an output of 36,566 units based on its production capacity in December 2021.

Tesla CEO Elon Musk said that Q1 might be an extremely difficult period for Tesla due to supply chain shortages and the pandemic. Apparently he did not predict that Tesla would be hit by an even more dire situation in China in Q2.

SAIC Volkswagen’s Anting manufacturing base is located in Jiading district, one of the areas in Shanghai worst-hit by the pandemic (Image Source: Visual China)

Other automobile makers in Shanghai, including SAIC Motor Passenger Automobile Branch and SAIC-GM he also suspended operation or opted for production in the “closed-loop.” Closed-loop production means that the staff of the plant will not lee the premise during production so as to reduce contact with the outside world. SAIC-GM has been the most affected company. Its passenger car sales ranking had slumped to the fourth in 2021. The company had great confidence in rebounding to the top three league in 2022. But it is evident that the pandemic has changed everything.

SAIC-GM had to put its Anting plant under “closed-loop” production on March 14, March 15, March 21 and March 22. The daily output of SAIC-GM’s Anting plant slumped by nearly 40%.

One of the company’s four plants in Jiading district even suspended its operation on April 1. The plant did not resume operation on April 5 as planned because the pandemic has continued to worsen in Shanghai.

FAW-Volkswagen in North China’s Changchun is also in trouble.

Jilin province’s capital Changchun is home to one of the largest automobile manufacturing, research and development centers in China. The city was hit by a new we of the pandemic sparked by the more contagious Omicron variant prior to the outbreak in Shanghai. The city’s Bureau of Industry and Information Technology announced on March 13 that companies within the city are required to comply with pandemic control and prevention rules to achieve the goal of zero Covid-19 case. FAW Group later decided to suspend the operation of five whole-car production plants in Changchun starting from March 13.

It was not until April 11 that FAW Group resumed operation in Changchun.

Other cities in China with major automobile manufacturing bases are also under the threat of Covid-19 resurgence. In the past two weeks, a number of Covid-19 cases he been reported in Hangzhou and Guangzhou, where there are several major automobile manufacturing bases. BYD, Ford and Trumpchi all he important manufacturing bases in Hangzhou. Component suppliers such as Zhejiang Asia-Pacific Mechanical & Electronic and China National Hey Truck Group Hangzhou Engine he plants in Hangzhou. In addition, the pandemic in Hangzhou might spill over to other cities like Wenzhou, Jinhua and Ningbo in Zhejiang province, where manufacturing hubs for the automobile sector are located.

In Guangzhou, GAC Honda, GAC Toyota, Aion, Trumpchi and Dongfeng Nissan’s manufacturing plants are under the threat posed by the spread of Omicron. Neighboring manufacturing centers such as Foshan, Dongguan, Zhaoqing and Jiangmen also he automobile makers and component suppliers’ plants. If a large outbreak happens in Guangzhou, the automobile production in the Greater Bay Area will also be halted, just like in Shanghai and Jilin province.

“We must get ready for a hard time,” an industry expert said in an interview.

(The article is translated and edited with authorization from the author , please note source and hyperlink when reproduce. The original article can be found .)

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