- Coronavirus, which began in Wuhan, China, has shut down factories.
- Car sales in China fell 92% in the first half of February.
- The impacts are being felt around the world, as shortages affect production.
As Chinese companies attempt to restart their operations after the recent nationwide shutdown to try to prevent the spread of the COVID-19 coronavirus, it’s clear that the mounting economic effects of the outbreak are leaving their toll on the country’s automotive sector.
Chinese car production stalled
China is the world’s biggest car market, and Wuhan, the city at the center of the outbreak, is known as a “motor city” for being home to auto plants including General Motors, Honda, Nissan, Peugeot Group and Renault. For Honda alone, Wuhan accounts for about 50% of total production in China. In 2019, Hubei Province, of which Wuhan is the capital, was the fourth-largest car producer in China, with about 10% of the country’s car-making capacity and produced 2.24 million vehicles.
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As the coronavirus spread, many auto companies across the country closed their doors as part of the recent nationwide shutdown. In addition to the auto companies based in Hubei, for example, Tesla’s new factory in Shanghai shut down, postponing the production date of its Model 3, and Volkswagen postponed production at all of its Chinese plants that it runs in partnership with SAIC.
Largely as a result, car sales in China fell 92% in the first half of February, according to the data from the China Passenger Car Association (CPCA). China’s association of automobile manufacturers recently forecast a 10% decrease in sales for the first half of the year and 5% decline for the full year. If many factories close until mid-March, it could lead to reduction of 1.7 million vehicle production in China, according to IHS Markit.
What is the World Economic Forum doing about the coronavirus outbreak?
A new strain of Coronavirus, COVID 19, is spreading around the world, causing deaths and major disruption to the global economy.
Responding to this crisis requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.
The Forum has created the COVID Action Platform, a global platform to convene the business community for collective action, protect people’s livelihoods and facilitate business continuity, and mobilize support for the COVID-19 response. The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.
As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.
With many workers remain quarantined at home and supply lines affected, many factories are struggling to reopen or regain full capacity. Hubei recently announced it would extend the shutdown of non-essential businesses until 11 March. In addition, China’s annual auto show in Beijing, originally scheduled for 21 April, has been postponed, among many other events that have been cancelled or delayed in response to the outbreak.
Domino effects felt around the world
The impacts on the auto industry are being felt beyond China’s borders, as shortages of supplies from China stall production around the world.
For example, Hyundai and Kia recently stopped several assembly lines in Korea and Nissan announced it would suspend its auto production in Japan. General Motors suggested that production outages could affect plants in Michigan and Texas, Jaguar Land Rover warned the virus could create problems at its assembly plants in Britain, and Fiat Chrysler Automobiles CEO’s Mike Manley said that production at one of the European plants may be suspended by the end of February.
Auto companies are fighting back
In response to the virus, many auto companies are looking for solutions to get back to work.
For example, with customer traffic in traditional dealerships heavily reduced, some carmakers turned to digital solutions. Besides new automotive players like NIO, XPeng, who were born with online-to-offline genes, many traditional automotive brands, including Volkswagen, Nissan, SAIC and BMW, turned to online shopping for cars using tools including virtual reality and live broadcasts to stimulate sales.
In response to a severe shortage of facial masks, SAIC-GM-Wuling Automobile (SGMW) announced it would produce masks, which can help prevent the virus infection via respiration. SGMW worked with Guangxi Defu Technology, who is an interior parts supplier, to install mask production in Guangxi Province. There will be 14 new production lines for both medical masks and N95 facial masks with the planned volume of 1.7 million per day. The first batch of 200 thousand masks from SGMW were finished on 9 Feb.
Meanwhile, automakers BYD Co. and GAC Motor Co. also announced it would produce masks and disinfectants at their factories. The planned capacity of BYD production is 5 million masks and 50 thousand bottles of disinfectant per day, with the first batch donated to drivers of public buses, taxis, ride-hailing fleets and volunteers fighting the outbreak.
As businesses resume operations, there may be a surge in growth in the automotive market, but it will take time to go back to normal levels. Still, the coronavirus outbreak will surely accelerate industry consolidation and transformation.