How China's zero-Covid policy is affecting car makers

Just as the car factories affected by a Covid shutdown in Shanghai are starting to reopen, so the knock-on effect of the broader restrictions in China is beginning to hamper automotive production elsewhere.

Renault announced on Tuesday that it had temporarily stopped production of the Mégane E-Tech at its plant in Douai, northern France, citing the “semiconductor crisis accentuated by the lockdown measures in several regions of China”, according to Reuters.

Renault’s actions are a reminder that the automotive supply chain, particularly when it comes to EVs, is still reliant on Chinese parts makers. It means the country’s very different method of dealing with the Covid threat – lockdowns to halt the spread rather than relying on mass vaccination – has a delayed effect on production elsewhere as suppliers are forced to pause production.

Companies are concerned that the plant closures that affected the likes of Tesla and the Volkswagen Group in Shanghai will spread because of a lack of parts. “If supply chain companies could not find a way to resume operation and production, it’s likely all Chinese OEMs may have to suspend production in May,” the CEO of electric vehicle maker Xpeng, He Xiaopeng, posted on his personal social media accounts last week.

Parts supply, meanwhile, is being hampered by logistics disruption as lorry drivers are subject to strict Covid testing and ships are finding it difficult to load and unload at affected ports.
The Chinese government is trying to find a way to allow key industries such as automotive and semiconductor makers to restart production, even as restrictions continue. The government said it had “white listed” more than 600 companies that it had targeted for early reopening. Of those, 251 were in the automotive industry, including VW, its partner and MG owner SAIC Motor, and Tesla.

Tesla’s Shanghai plant, which currently supplies much of Europe with the Californian brand’s Model 3 and Model Y cars, reopened on Tuesday. Tesla had initially tried to operate a ‘closed-loop’ system whereby employees were tested and allowed to sleep on site, but that proved impractical, according to reports.

The lockdowns have hit car sales in China, with March figures down slightly on March 2021, halting a surge in demand through January and February. Car showrooms were shut in Shanghai from 1 April, while across China dealerships in 25 of 90 cities were forced to shut in March, according to data from China Passenger Car Association.

Porsche has said the China Covid measures contributed to a fall in quarter one sales, down 5% year on year, along with its loss of cars in the February cargo ship sinking.

China’s March lockdowns have also hit the semiconductor industry, with chip production In China falling 4.2% in the first quarter, according to the country’s National Bureau of Statistics. The slowdown in production brings further bad news for car makers, who have been suffering from a shortage of chips for the past 12 months.

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