Shanghai lockdowns threaten China’s automotive production

BEIJING

Chinese auto makers warned they may have to put the brakes on production if strict COVID-19 curbs in Shanghai persist, with a top Huawei executive also sounding the alarm on April 15 about snarled supply chains.

The restrictions have kept Shanghai’s 25 million residents mostly at home for weeks, forcing manufacturers to halt operations and making China’s GDP growth target of around 5.5 percent look increasingly difficult to achieve.

COVID outbreaks across the country and the associated reductions in economic activity have already hit the auto industry hard, with car sales dropping 10.5 percent in March.

“If supply chain companies in Shanghai and its surrounding areas cannot find a way to dynamically resume work and production, all original equipment manufacturers may have to stop production in May,” XPeng chief He Xiaopeng said on April 14 on social media.

XPeng has been touted as a Chinese challenger to U.S. electric car giant Tesla, and its chief said that businesses were hoping for more support from the authorities to navigate the COVID closures.

A top executive at Chinese tech giant Huawei - which has started to work with domestic auto manufacturers in the intelligent vehicle sector - echoed the comments on April 15 and warned the clock was ticking.

“If Shanghai continues being unable to resume work and production, from May, all tech and industrial players involving the Shanghai supply chain will completely shut down, especially the auto industry!” Richard Yu, head of Huawei’s consumer and auto segment, said on the social media platform WeChat.

Huawei sold its first 3,000 electric vehicles with the company’s HarmonyOS operating system in March.

The group has been working with automakers to provide intelligent auto components, but does not make cars on its own.
The COVID curbs have affected global brands as well, with Volkswagen saying it has been “severely hit by COVID-19 outbreaks in Changchun and Shanghai,” where the German titan’s Chinese joint ventures are located.

The firm is “temporarily unable to meet high customer demand,” said Volkswagen Group China CEO Stephan Wollenstein on April 14, adding that he hoped the production delays could be made up in the coming months.

Volkswagen said around 20 percent of its dealers were forced to temporarily close in March alone as a result of lockdowns.

Tesla’s multi-billion-dollar “gigafactory” in Shanghai - which the company calls its main export hub - has also been reportedly shut.
Chinese electric vehicle maker Nio said last weekend that it had suspended vehicle production, as business partners in virus-hit areas such as Jilin and Shanghai halted operations.

Spring planting by Chinese farmers who feed 1.4 billion people might be disrupted, Nomura economists warned on April 14. That could boost demand for imported wheat and other food, pushing up already high global prices.

Restrictions on areas that produce the world’s smartphones, consumer electronics and other goods are prompting forecasters to cut expectations for this year’s economic growth to as low as 5 percent, down sharply from last year’s 8.1 percent expansion.

The ruling party’s target is 5.5 percent. Growth slid to 4 percent over a year earlier in the final quarter of 2021 after tighter official controls on debt triggered a collapse in home sales and construction, industries that support millions of jobs.