Impact of China’s Lockdown on the Automotive Industry

China’s strive for zero-covid statistics continue to hinder economic growth and affect workers around the world. The automotive industry is one of many industries that are disrupted by the month-long lockdown in Shanghai. The city of Nanjing succeeded in the strive to become covid free. Although this can be seen as a big achievement worldwide, the effect it has had on the city’s economy plays a big role. The city faces many challenges, factories are struggling to get materials from Shanghai in order to build their products. A worker from the Bosch factory claimed that the workers only worked two days out of an ordinary week where they would normally work six days a week. Only a third of the 3 000 production workers of Bosch in Shanghai were working during lockdown. The shortage in the supply chain not only effects customers of the country but also customers across the world and effects such as further shortages of products and increase in prices are predicted.

https://www.statista.com/chart/27343/container-ship-backlog-off-shanghai-port/

The American Chamber of Commerce in China created a survey and found that 86% of manufactures who completed the survey experienced difficulties within the supply chain due to the ongoing lockdown. The Bosch factory (mentioned above) stated that its company suffered from various production problems in cities across China. The spokeswoman of Bosch said that they are doing everything they can in order to maintain the supply chain and to meet the needs of their customers. Bosch supplies parts and materials to big automakers including Mercedes-Benz, Honda and Volkswagen. Especially in the automotive industry, should the production supply continue its delay in Shanghai, then all connections to Shanghai’s supply chain will feel the effects and it could lead to the stop of overall production.

Shanghai is China’s biggest car-producing centre, and they not only have connections with SAIC which has combined factories with Volkswagen and General Motors but also Tesla’s Gigafactory 3. Another affected city, Changchun, is connected to FAW operations which includes factory producing for Volkswagen and Audi. Zhejiang and Jiangsu are two provinces that are large Chinese automotive suppliers that are also experiencing the effects of the lockdown restrictions. A prediction was posted on WeChat, and it says, “If suppliers in Shanghai and neighbouring cities can’t find a way to dynamically resume production, then probably all automakers in China will have to halt production by May.” Approximately 373 million people affected by these disruptions amounts for 26% of China’s population and this statistic is responsible for 40% of GDP.

China’s automotive industry is also experiencing shortages of electronic components. In March, the production of integrated circuits fell 5.1% year-over-year and is likely to fall more in the upcoming months. China’s manufacturing consultants’ highlights that approximately 4 000 to 6 000 parts are used to produce an ordinary car and should one of those parts be unavailable, then no cars can be manufactured.

The take away forecast scenario is to expect a continued and the drastic decrease in supply of automotive parts due to the effect that the lockdown has on China’s supply chain. The decrease of supply leads to price increase which not only affects China, but other countries as well. Given the pressure on employment and inflationary pressures on increasing prices, the demand for certain products will decrease to match the supply given that there will be fewer people willing or able to pay higher prices for the same part/product. The overall change in price will lead to a new equilibrium price in a plethora of products.

Author: Saskia Smith, Copywriter 

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References

Andrews, M. (2022, April 25). Shanghai's Covid-19 Lockdown: The effects on the Automotive Industry. Retrieved from DirectIndustry E-Magazine: https://emag.directindustry.com/shanghais-covid-19-lockdown-the-effects-on-the-automotive-industry/

Britannica. (2013). supply and demand. Retrieved from Britannica: https://www.britannica.com/topic/supply-and-demand

Dou, E. (2022, April 26). Chinese city with 'zero-covid' still hit by pandemic economic woes. Retrieved from The Washington Post: https://www.washingtonpost.com/world/2022/04/26/china-economy-coronavirus-supplychain/