Automobile supply chain under the epidemic: a bigger crisis is brewing

The impact of the new epidemic on the automobile supply chain begins in Shanghai, but not only in Shanghai.

However, due to the complexity and length of the automobile supply chain itself, it will take some time for the crisis to spread from upstream to downstream, and a broader crisis of parts shortage is expected to begin to emerge in April.

Production was blocked due to the epidemic, and many enterprises were forced to stop production.

Under the epidemic, the automobile supply chain is once again facing a severe test.

On April 14, according to the official news of the tank brand, due to the epidemic in Shanghai, Jiangsu, Jilin and other places, the production of tank 300 models was suspended from April 14 due to the suspension of work and operation of eight supplier partners. Prior to this, a relevant person in charge of Great Wall Motor just said on the 11th that due to the impact of the epidemic in Shanghai, Jiangsu and other places, many of its suppliers had shut down, resulting in a continuous decline in factory spare parts reserves. to this end, Great Wall Motor is already evaluating the existing reserve materials and reformulating the production scheduling plan.

Also on the 11th, Bosch said in a statement that in order to comply with local epidemic prevention and control regulations, it has suspended production at a factory in Shanghai that produces domestic hot water systems and a factory in Jilin that produces auto parts. At the same time, Bosch's auto parts plants in Shanghai and Taicang in Jiangsu Province have also adopted a closed-loop operation model to maintain production.

Given that the domestic epidemic is showing a trend of multi-point distribution and local large-scale outbreaks, the experience of the Great Wall and Bosch is not surprising. In fact, as early as the outbreak of the epidemic in Jilin in March, FAW made production suspension arrangements for a number of its brands, and the epidemic in Shanghai began to break out on a large scale in mid-late March, and this wave of production cuts and shutdowns further spread among enterprises in Shanghai.

At present, there are many enterprises in Shanghai that are struggling because of the epidemic on the parts supply side. A staff member of a head wire harness company had previously told Galaxy that their local factory in Shanghai began to arrange closed-loop management of employees at the factory around March 24 to keep the factory running. Another supplier of car wiring harness and electronics in Pudong, Shanghai, also revealed that in this round of the epidemic, they arranged for about 1 of the employees to stay in the factory to guarantee production, and then the company even tried to apply for a pass for its employees many times, but it was delayed for a variety of reasons.

"our business covers R & D and production, and home collaboration among colleagues in various R & D departments is smooth, but outdoor road tests, vehicle commissioning and data collection are restricted. The production side is affected more widely, on the one hand, affected by the stagnation of logistics, the risk of purchasing at the end of the supply chain, and on the other hand, factories are closed, affecting the operation of production lines and product shipments. " That's what a local provider of smart driving solutions said in an interview with Galaxy.

The production rhythm of upstream parts suppliers has been disrupted, shipping arrangements have been interrupted, and life for downstream car companies is also very difficult. SAIC-Volkswagen plant in Anting, Jiading, Shanghai, entered closed-loop production on March 14 and halted some production on March 31. SAIC GM's plant in Jinqiao, Pudong, also slowed production because of the epidemic. Tesla's Shanghai factory even stopped production for two days because of epidemic prevention as early as mid-March. Then, at the end of March, Shanghai implemented a new round of epidemic prevention measures, proposing to carry out nucleic acid screening in Pudong and Puxi in batches with the Huangpu River as the boundary, and the Tesla factory was forced to stop production again.

It is reported that up to now, Tesla has not clearly reported the news of resuming production, which means that Tesla has stopped production for more than half a month. Based on the calculation of the current weekly production of 6000 Model 3s and 10000 Model Ys at the Shanghai factory, Tesla has lost at least 32000 new cars in the past half month, and this scale continues to expand.

After Tesla, Weilai also officially announced the suspension of production on April 9. On the same day, Weilai announced on the official APP that since March, the company's supply chain partners in Jilin, Shanghai, Jiangsu and other places have stopped production one after another and have not recovered since March. Affected by this, the production of the whole vehicle of Weilai has been suspended.

On April 14, according to the latest news, the supply chain of Lulai has recovered slightly, and Hefei production base is gradually resuming production. However, Weilai also pointed out that its follow-up production plan also depends on the recovery of the supply chain. Considering the current epidemic situation, this means that there are still great uncertainties in the operation of its factories in the future.

The epidemic continues to spread, and the risk of disconnection is gradually emerging.

Although many car companies and parts suppliers suspended some production in March due to epidemic prevention, the impact on the production side is not particularly obvious. According to March production and sales data released by the Federation of passengers, domestic passenger cars produced a total of 1.823 million new cars last month, an increase of 22.0% month-on-month and only 0.3% lower than the same period last year.

But the next April or even May, it was less optimistic. According to the estimates of the Federation of passengers, the epidemic in Shanghai and other places is expected to bring 20% of the production loss to the automobile industry, and will have a greater impact on the supply of key parts of the automobile industry.

He Xiaopeng, chairman of Xiaopeng Motor, even wrote on moments that if the supply chain enterprises in Shanghai and surrounding areas cannot find a way to dynamically resume work and production, all vehicle factories in China may have to stop production in May.

Photo Source: Internet

In fact, this is not difficult to predict, at this stage, many enterprises arrange employees to stay in the factory to guarantee supply, mainly relying on existing inventory. However, inventory is always exhausted, and the epidemic in Shanghai has not seen an inflection point so far, which means that the closure and control measures at this stage will continue, including strict control of logistics. in this way, the inventory of many enterprises will not be replenished, and the suspension of production is inevitable. A joint venture car company said in an interview with Gesco that due to the disruption of upstream parts production and logistics, some of the company's spare parts are almost out of stock, and the factory has been completely shut down.

According to the understanding of Geshi Automotive, there are not a few enterprises with similar risk of outage in the upper and lower reaches of the automobile industry chain. The wire harness companies interviewed said that their inventory is tight and it is estimated that they can only hold on for a few more weeks. An interviewee from another wire harness enterprise also pointed out that although some of the company's employees are in closed-loop production and procurement personnel are docking upstream suppliers around the clock to follow up the progress of delivery, because logistics is blocked, it can only delay the negative impact of the epidemic to a certain extent, but it does not fundamentally solve the problem, and it will face the risk of stopping production in the long run.

In addition, according to the aforementioned intelligent driving solution provider, their company's inventory can only maintain production for less than three months, so the company is cooperating and helping each other through the deployment of resources in different places, upstream and downstream industrial chain partners and shareholders. Do some plans and mitigation as much as possible.

Another Zhejiang supplier admitted in an interview with Galaxy that their company's supply of raw materials is expected to last only until the end of April and early May. At present, the company has also tried to find alternative suppliers around Shanghai, where their suppliers were previously based.

But it's not easy. Due to the multi-point spread of the epidemic and the continuous escalation of prevention and control measures in many places, the inter-provincial transportation of spare parts is now fraught with obstacles. For example, in Shanghai, except for epidemic prevention and daily necessities, a lot of production logistics have stagnated. As a result, raw materials and spare parts shipped from other places to Shanghai cannot be imported, and products that need to be sent from Shanghai to other places cannot be sent out. And even if a small number of logistics can operate, the time cost is much higher than before. According to employees of an enterprise, due to the closure policy between different cities, its suppliers can only pull the products from the supplier warehouse to a point, unload the goods manually, and then transfer to another car at the highway intersection. so many transfers can be pulled into the factory in Shanghai.

New trend chart of epidemic situation in Shanghai, photo source: Sina news statistics

What's more, at present, an epidemic has begun to break out in areas around Shanghai. Take Suzhou as an example, according to the latest statistics, the cumulative number of confirmed cases reported in Suzhou since April has reached 8, with 311 local asymptomatic infections. In addition, Hangzhou, Ningbo, Jiaxing and other places also showed a trend of distribution. And many domestic parts enterprises are distributed in the Yangtze River Delta region. According to data from the Bureau of Statistics, the Yangtze River Delta region accounts for about 21.6% of domestic automobile output, and the added value of the automobile industry accounts for 31.2%. Once the scope of control is further expanded, the potential risks are beyond doubt.

A person in charge of a mold company in Shanghai said that before they had a lot of materials processed in Kunshan, Jiangsu Province, but since April 5, due to strict epidemic prevention control in Kunshan, the relevant enterprises were forced to stop production. Now the company is considering directly looking for relevant enterprises in Zhejiang to assist in production, because many of their raw materials are originally from Zhejiang.

A relevant person in charge of a semiconductor company in Xuzhou, Jiangsu Province also said that in response to epidemic prevention requirements, some employees of the company now have to work from home, resulting in a slowdown in the pace of production, new employees from other places can not get to work in time, and customers are unable to visit. In addition, the disruption of logistics also makes the delivery of raw materials delayed, shipments blocked, and is no longer under control.

What is more serious is that recently, Guangzhou, Wuhan and other places have also begun to break out a new round of epidemic. According to the latest news, there has also been an epidemic in Jiaocheng District, Ningde City, where the Ningde era is headquartered. For this reason, traffic control has been implemented in the external passageway since April 10, and gridding management measures have been taken internally in the Ningde era to ensure orderly production in the Ningde base. But in the following three days, Ningde added 1, 7 and 9 confirmed cases, 23, 6 and 15 asymptomatic infections respectively.

Considering that the automobile industry cluster in which these cities are located is an important domestic automobile industry base, as well as the important position of related enterprises in the epidemic area in the automobile supply chain, if this epidemic is not controlled for a long time, it will have a greater impact on the domestic automobile industry.

Data Source: national Bureau of Statistics; Photo Source: Galaxy Automobile

According to relevant statistics, Guangdong Province produced a total of 3.3846 million vehicles in 2021, accounting for 12.76% of the country's total automobile output, ranking first in the country, of which the output of new energy vehicles accounted for more than 15%. This was followed by Shanghai, Jilin and Hubei provinces, with car production of 2.8332 million, 2.4241 million and 209.9 respectively last year, accounting for 10.68 per cent, 9.14 per cent and 7.91 per cent of the country's total car output, respectively.

The relevant person in charge of the aforementioned semiconductor company believes that if the epidemic is not controlled for a long time, it will have a greater impact on Q2, reduce the inventory of finished products in the enterprise in the short term, cause a backlog of orders, and may worsen the financial situation of automobile enterprises in the long run, thus affecting the normal operation of capital flow and logistics in the whole industry.

The relevant person in charge of the intelligent driving solution provider also said that due to delays in the delivery of enterprise products or services from upstream suppliers, this delay will also take some time to transmit from the supplier to OEM, which is expected to have a lasting impact on the automotive industry in the coming months.

It may be difficult to reproduce retaliatory consumption, Q2 challenge will be greater than Q1

With the continuation of the epidemic in Shanghai and its surrounding areas, it is an indisputable fact that the production end of the Q2 automobile industry will be seriously blocked, so what will be the demand in the terminal market? Will it still reproduce "retaliatory consumption" as it did in 2020?

Many interviewees are of the view that such a grand occasion may not happen this year. "it has been several years since the epidemic, and basically everyone who can buy a car has bought it. In addition, the prices of many cars have gone up recently, which may have a great impact on everyone's enthusiasm." The relevant person in charge of the above-mentioned joint venture car enterprise said. Specific to Q2, it believes that due to the relatively high cost pressure of vehicle enterprises, it may push up prices in the consumer market. In addition, considering the complexity of the automobile supply chain and the possibility of a recurrence of the epidemic, even if subsequent production resumes, some suppliers may not be able to supply the goods.

Analysts at the Global Automotive Research Institute also believe that compared with the Wuhan epidemic, it is expected that some of the best parts of consumption will occur after the epidemic, but the range will not be too large, mainly due to delays in picking up cars and superimposed normal transactions in the affected months. Weilai recently said that as the company's vehicle production has been suspended, the delivery of many users' vehicles will be delayed in the near future. Great Wall made a similar response, pointing out that the delivery time of some subsequent models will be extended due to the slowdown in production scheduling.

"among them, Q2, due to the triple impact of geopolitical conflicts, rising raw material costs and local outbreaks in the overall market, the car market is expected to fall off a cliff." The analyst said. He pointed out that this is mainly due to the developed automobile industry in areas with severe epidemics such as Shanghai and Changchun, which have gathered a number of head car companies, such as SAIC, FAW-Volkswagen, Tesla, and so on, which alone account for more than 20% of the annual domestic automobile output. Among them, the output of new energy passenger vehicles in Shanghai accounts for nearly 1x6. At the same time, the R & D and manufacturing bases of the world's leading Tier-1 enterprises in these regions are densely distributed, and the production shutdown and logistics control caused by the epidemic will lead to great pressure on normal production, and will also lead to insufficient supply chain supply, thus affecting the normal production of the automobile industry in other places such as the Yangtze River Delta and the central region.

Huafu Securities also expects that Q2 will be the stage of bottoming out in the automotive sector. For one thing, the national epidemic has not yet seen an inflection point, and the automobile sector is still suppressed; second, even after the inflection point, it will take longer for automobile consumption to recover, considering that the impact of this round of epidemic is wider and greater. Not only that, in the agency's view, because this round of epidemic involves a wide range of epidemic, and most of the outbreak areas are large areas of automobile production, considering the important position of the Yangtze River Delta in the domestic automobile industry chain, the Q1 epidemic in 2020 is mainly controlled in Hubei, and the impact of this epidemic on the automobile industry may far exceed that in 2020.

Strong demand for new energy vehicles, photo source: Federation of passengers

However, there are exceptions. Many respondents in this survey believe that even with the impact of the epidemic, the market demand for new energy vehicles will be very strong this year, which has already been reflected in the first quarter. Although a number of new energy car companies announced price increases for their products, this did not affect consumer enthusiasm in the end market. According to the data released by the Federation of passengers, the total wholesale sales of new energy passenger vehicles in China reached 455000 in March, an increase of 122.4% over the same period last year. Month-on-month growth increased by 43.6%, an increase of 1.19 million new energy passenger vehicles from January to March, a sharp increase of 145.4% over the same period last year.

The Federation believes that autonomous driving has become the first choice in the current environment, but due to the influence of high oil prices, more people will choose to buy new energy vehicles, so the new energy vehicles in April still maintain a strong growth. However, from the overall market performance, as the new confirmed cases in early April are still on the rise, employees of small and medium-sized enterprises are facing tremendous survival pressure, and retail sales in the domestic car market in April are expected to be much lower than those in March. In fact, it can be predicted that, at least in the Yangtze River Delta region, as the epidemic control continues, it will greatly reduce the arrival rate and turnover rate of 4S stores in the relevant areas.

What is noteworthy is that given that Shanghai is also home to Shanghai, the largest container port in the world, the continuation of the epidemic control measures will also affect the import and export of auto parts and vehicles to a certain extent, which in turn will have an impact on the global market. This year, many independent car companies have taken going out to sea as the focus of their efforts, and whether the epidemic will disrupt the pace of local car companies going to sea to a certain extent remains to be watched.