Automotive sector devastated by zero Covid strategy in China

It is a key sector for the health of Chinese industry and is doing poorly. Just over a million vehicles were sold in April, with sales down 35.7% year on year and 34% from the previous month, the China Passenger Car Association said on Tuesday (January 10). It’s about multiplying restrictions and restrictions since the introduction of the Omicron variant in China, the last country in the world to support a zero Covid strategy.

Shanghai, the country’s economic capital, is entering its seventh week of draconian lockdowns that prevent consumers from buying cars and disrupt car production. The metropolis is one of the main manufacturing centers of the industry – Tesla, General Motors and Volkswagen factories are located there – as well as components that supply the entire industry.

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The authorities are doing everything to support the resumption of production: among the 666 strategic enterprises allowed to resume work on April 19, a third belongs to the automotive industry. However, this is not enough to solve many bottlenecks, while most of the 25 million inhabitants of the economic capital are still chained to their homes.

Logistics remains a major challenge

The Tesla Gigafactory is one of the priorities of the municipality, both because of its economic and symbolic significance. About 8,000 employees, half of the normal workforce, are sleeping on site, allowing the plant to operate at 40% capacity at the end of April. However, the site had to significantly reduce production rates due to a shortage of electronic components, one of its suppliers was forced to stop production after the outbreak of Covid-19 on site. As a result, the company was only able to produce 10,757 vehicles in April, of which only 1,512 could be shipped and none were exported. By March, the plant had shipped 65,814 vehicles, of which more than half were exported to Asia and Europe, according to Bloomberg.

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2022 has been declared a favorable year for the world’s leading automotive market. Decreasing since 2017, sales returned to growth in 2021 (+3.8%, 26.28 million units sold). The Association of Automobile Manufacturers hoped for a confirmation of this trend this year (+5.4% expectation). A target that now appears compromised. “In the period from March to May, due to quarantine, 650-700,000 cars will be produced less. says John Zeng, Chinese director of Shanghai-based consulting firm LMC Automotive.. At the beginning of the year, we already predicted that the Russian-Ukrainian war and the lack of semiconductors could cost China 1 million vehicles. There it will be 1.6–1.7 million fewer cars. As a result, the growth of the automotive market will not be 5%, as we expected, but almost zero. » And again, the expert continues, “This suggests that Shanghai has the epidemic under control until June, and that the government is putting in place stimulus measures for the second half of the year: some cities, such as Shenzhen, have already announced car subsidies.”

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