China: World’s biggest car market grinding to a halt

The sixth week of an intensifying COVID lockdown in Shanghai and the ongoing global semi-conductor shortage have all but stopped vehicle production in China, the world’s biggest auto market.

On Monday this week (May 9), Tesla’s Shanghai production line again fell silent during the latest stoppage in a string since March. After an earlier localised two-day lockdown that month, the Tesla plant was suspended from March 28 as the entire eastern side of the city entered what was billed as a four-day lockdown.

While that lockdown has yet to be lifted in Shanghai – China’s largest city and commercial hub, with 70 per cent of the country’s auto import/export business and a population of 25 million – Tesla did manage to resume production on April 19 after the company appeared on the Shanghai government’s initial whitelist of 666 companies fast-tracked for reopening.

Around a third of the companies on the list were automotive related and included SAIC, MG’s parent company and joint-venture partner of GM and Volkswagen. Tesla reportedly resumed production with around a half of its usual workforce, but its latest stoppage is due to components shortages.

According to Reuters sources, Tesla planned to manufacture fewer than 200 vehicles a day in Shanghai this week – well below the 1200 a day it had ramped up to after reopening on April 19 following a 22-day closure – and had been aiming to increase output to 2600 cars a day as soon as next week.

Data released by the China Passenger Car Association (CPCA) this week showed Tesla sales in China slumped by 98 per cent to just 1512 in April – down from 65,814 in March and the lowest sales tally since April 2020, four months after it began Shanghai production.

Overall passenger car sales in China dropped almost 36 per cent in April according to CPCA data, while another Chinese auto association estimated last week that overall vehicle sales in the world’s most populous nation slumped by 48 per cent last month as lockdowns closed factories, limited traffic to showrooms and put the brakes on spending.

In a WeChat post in mid-April, XPeng chief He Xiaopeng said that if suppliers were unable to find a way to resume production soon, all Chinese car-makers would need to stop production in May.

With increasing numbers of companies in Shanghai resuming production with closed-loop systems, in which workers are often forced to sleep in factories, this seemed a receding threat. Tesla’s latest stoppage shows the danger is far from over yet.

Suppliers and logistics chains are the weakest link and these not only threaten production at car plants in China but around the globe. For Aussie consumers, this will likely mean longer waits for new cars and increased prices on forecourts.

With at least 4000 parts going into the average car, it only takes a shortage of one to bring production to a halt, unless vehicles are shipped without certain equipment, as we’ve already seen in Australia.

While most headlines concentrate on the Shanghai situation, according to financial services provider Nomura as of May 3 there were 43 Chinese cities in either full or partial lockdown, involving 327.9 million people – 23 per cent of China’s population responsible for 31 per cent of GDP.

The latest figures are an improvement from Nomura’s April 11 numbers, which put the total at 373 million responsible for 40 per cent of GDP.

Besides Shanghai, the lockdowns have affected Changchun – another car manufacturing hub – and parts of Jiangsu and Zhejiang Provinces, which are home to many automotive suppliers.

In addition, there are worrying signs that the capital, Beijing, and the large industrial city of Zhengzhou may soon experience full-scale lockdowns.

Ever-changing regulations and the threat of quarantine have kept many transport workers off the road. Nomura figures show the road freight index down 82.6 per cent in Shanghai in the first half of April, along with drops of 41.5 per cent in Jiangsu Province and 40.9 per cent in Fujian Province.

Whether government attempts at improving the situation have made any difference remains unclear.

All cars currently sold in Australia by Tesla, MG, GWM/Haval, LDV, Polestar and BYD are imported from China.

The largest of them is MG, which sold more than 39,000 vehicles here in 2021 – double the next biggest Chinese brand, putting it solidly in the top 10 overall – and says it currently has plenty of stock, for now.

“MG Motor Australia has fought really hard to secure a large proportion of automotive allocation for our region in an ongoing effort to keep Australians moving,” said an MG Motor Australia spokesperson.

“Every business has accepted that there will be challenges, however given our growth in this market and manufacturing capabilities [we] are well prepared to navigate our way and are confident of meeting market demand and our customer expectation.

“To be considered one of the fastest growing automotive brands is a tremendous honour and validates what our entire team at MG Motor Australia continues to build. Our goal remains to deliver world-class cars packed with value through our local dealer network.

“For most models in our range, we have a good supply for immediate delivery, however there may be delays for some specific variants and colour combinations. If the lockdowns continue, there will be additional delays for customers, however it is hard to quantify timing at this stage.”

Next biggest is GWM, which sold over 18,000 Haval SUVs and Great Wall utes Down Under last year. GWM halted production of its Ora EVs and Tank SUVs – both of which are due to be launched in Australia later this year – during April.

Despite its factories not being in lockdown areas, GWM was a victim of parts shortages and it remains to be seen whether the stoppages delay the launches of either Chinese brand here.

GWM Ute sales are down 55 per cent to April this year but GWM Australia says its stock situation is improving.

“GWM has been experiencing some supply difficulties over the last few months, and while these difficulties continue, we are beginning to see our supply situation slowly improving,” said head of marketing and communications Steve Maciver.

“Although not yet back to full capacity, our production plan through May and June is certainly more positive.”

LDV Australia sold more than 15,000 utes and vans in 2021, but sales of the LDV T60 ute are down by 50 per cent in the first four months of 2022.

“Like many OEMs, LDV supply has been tight in recent months due to the combination of production and shipping disruptions caused by the various lockdowns in China, and the ongoing global semi-conductor shortage,” a spokesperson said.

“While stock is coming through to Australia, it’s not yet at levels that match our current sales rates, so we continue to work closely with our colleagues in China to resolve these delays and to minimise any negative impact on our customers.”

Tesla is Australia’s biggest EV brand, with more than 12,000 sales last year – all of them Model 3 sedans from China, where the long-waited Model Y medium SUV will also be produced.

But the US EV company did not export any Model 3 or Model Y vehicles from its Shanghai plant in April and the impact on Australia’s top-selling EV or the local launch of its SUV sibling remain unclear at this stage.

“Although the production has been resumed, the production capacity still needs to be further improved, which may affect the export efficiency, but whether it will affect Australia remains to be verified,” said a Tesla spokesperson, who refused to be drawn on reports of the latest stoppage.

As with MG, Tesla sales show no signs of slowing so far this year, with almost 4500 Model 3s sold to April this year, putting it on track for another record year even without the Model Y, Model S or Model X – if Chinese supplies continue.

Polestar Australia told carsales earlier this week it has sufficient supplies to meet its 2022 sales target, but the Polestar 2 waiting list already stands at six months and it remains to be seen whether its future model rollout and sales ambitions – which including out-selling Tesla – will be impacted.

Most car producers reported big sales drops in China last month, but one of the few bucking the trend was BYD, which has just been launched in Australia.

However, BYD halted production at its Changsha plant around May 8 due to environmental pollution problems associated with its paint shop. The Changsha plant is one of BYD’s largest factories and produces a number of models including the Atto 2 (sold domestically as the Dolphin), which is due to join the newly-launched Atto 3 small electric SUV in Australia later this year.

Another incoming Chinese brand is Chery, which is planning to launch in Australia soon with its Omoda 5 small SUV, but it remains unclear whether its October target remains intact amid the Shanghai crisis.

Currently underappreciated is the potential threat to worldwide car production from Chinese lockdowns.

“The effect is not only on the area, but also on the whole country and across continents. Many car parts are made in China and shipped to car assembly plants located in other countries, including in Europe and in North America,” said Renaud Anjoran, partner at Shenzhen-based China Manufacturing Consultants.

Mazda and Mitsubishi have already had to stop production at some factories in Japan and Toyota recently halted production at 14 lines across eight factories in Japan over May 16-21 due to a shortage of parts from China.

This followed previous stoppages due to the semi-conductor shortage, many of which impacted Australian supplies of models including the new Toyota LandCruiser.

Thai production of the incoming new-generation Ford Ranger has also been impacted by shortages of Chinese-sourced components, blowing out the waiting times for Australian customers.

Shipping analytics firm Windward showed that the number of vessels awaiting berthing at Chinese ports on April 12-13 had increased by 195 per cent since February, to 506.

Exasperating the problem is the Ukraine conflict.

“A lot of goods that were planned to be shipped from China to Europe by rail are now shipped by sea, and that is contributing to the difficulty in finding a container as well as space on a vessel for sending cargo out of China,” said Anjoran.

The port of Shanghai, the world’s busiest container port, has been working on greatly reduced capacity due to the lockdown.

On May 11, Tesla shipped the first ro-ro load of 4767 cars destined for Europe since production resumed in April.

“The longer this lasts, the higher the probability that it is going to affect production outside China in Europe, Japan and the US,” said Tu Le, founder of Beijing-based Sino Auto Insights.

“OEMs are likely requesting their suppliers to build ahead, meaning that they build more than initially ordered so that the OEM can horde the parts. This takes supply for other customers out of the system which pushes up the price as well.”

The upshot of all this is likely to be higher prices and longer waiting times for Australian car buyers, no matter where their vehicle originates from.

– with carsales staff

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