Caixin
May 05, 2022 08:35 PM
OPINION

Survey: China’s Covid Outbreaks Clobber NEV Production and Sales

China’s EV industry has taken a huge hit from the recent pandemic control measures necessitated by Covid outbreaks across the country, with over 90% of enterprises reporting some adverse impact from the pandemic, according to the survey.

More than one-third of the respondents said they suffered drops in production and sales, according to the survey on the pandemic’s impact to the new-energy vehicle (NEV) industry conducted by EV Observer, an industry information portal. The survey involved 133 enterprises in the NEV industrial chain, including automakers, manufacturers of auto parts (e.g. power batteries), logistics operators and traders.

Among the areas of direct impact, logistics disruptions were the most prominent, with nearly 60% of the respondents claiming they had been negatively affected by it. Some 40% of the respondents were affected by auto parts shortage, which was largely due to logistics woes.

The survey highlights:

• 36.1% of businesses have seen their production or sales drop by at least one-third

• 40% have been affected by the shortage of auto parts, which is largely due to logistics disruptions

• 60.9% have had their deliveries delayed by less than 30 days, while 23.3% suffered delays of 30–90 days

• 73.7% of the companies see the pandemic as drag on the NEV industry

Delivery delays due to the decrease in production and sales

The survey provides a deep insight into enterprises in the NEV industry, covering finished vehicles, auto parts and raw materials manufacturers, as well as aftermarket players and charging station operators.

It reveals that the Covid-19 pandemic has had a wider impact than expected. In fact, only 10% of the enterprises have been able to stay immune.

The survey shows that among the affected enterprises:

• 32.3% have suffered 10%–30% drop in production or sales;

• 31.6% have suffered up to 10% decline in production or sales;

• 18.8% of enterprises have suffered contraction of more than 50%; and

• 17.3% of enterprises have lost 30%–50% of their production or sales, most of whom operate in the auto parts sector.

Most of those suffering from a plunge of over 50% are traders, logistics operators and finished-vehicle manufacturers, which is easy to understand as traders and logistics operators are unable to operate during lockdowns or logistical suspensions.

For example, a Tangshan-based distributor was required to close down for 20 days from late March to early April. As a result, it delivered no more than 50 units of vehicles in the whole of March. But the number would have been around 90 under normal circumstances, according to the distributor.

Finished-vehicle manufacturers, which integrate auto parts into finished vehicles on a large scale, are also suffering heavy losses.

Being short of just one auto part is enough to force a suspension. For instance, Nio Inc.’s production of finished vehicles has already been suspended for a long period, primarily because of the shutdown of its suppliers based in Jilin, Shanghai and Jiangsu, said Li Bin, founder of Nio.

Enterprises in other sectors are also hit, albeit to a lesser degree than traders, logistics operators and finished-vehicle manufacturers.

A Shanghai-based raw material manufacturer has been in closed-loop production for three weeks. They say they could probably hold on for one more week, though output has been cut by approximately 20%. However, as logistics are suspended, the goods cannot be shipped out and the materials needed cannot enter, which has greatly affected the overall mood.

Delivery delays are one of the most obvious indicators of how operations have been impacted.

Of the surveyed enterprises, 60.9% have had their deliveries delayed by less than 30 days, while 23.3% have had their deliveries delayed by 30–90 days. Those with delays of more than 90 days accounted for only 5.3%.

Fortunately, most customers understand that there will be delays in the current situation, the respondents said.

The impact of Covid-19 has yet to affect staff salaries.

The majority of the surveyed enterprises have paid their salaries as usual. Some business owners have even provided their employees with a pay raise.

Logistics: the largest disruptor

When pinpointing the factors that have brought the largest impact, 57.9% of the respondents pointed to logistics suspension, while 46.6% blamed the weakened market demand. Shortage of parts, which is largely due to logistics suspension, was selected by 39.8% of the respondents.

There is no doubt that logistics suspension is the most acute problem.

Auto parts cannot be received, and products cannot be delivered, restricting enterprises at both ends. In fact, only 18.8% of the respondents said their logistical operations were unaffected. In contrast, more than 60% complained about not receiving auto parts, and over 40% said they had trouble delivering their products.

Here are a few cases illustrated by the respondents.

Zhejiang Geely Automobile Co. Ltd.’s Zhejiang-based cargo van factory has delayed deliveries for over 15 days because auxiliary control parts have yet to be delivered from Shenzhen, due to the Covid-19 pandemic. As it is not reliant on parts from Shanghai, the factory is thus not affected from the lockdown of the metropolis.

For a Shandong-based battery cathode producer, the short supply of raw materials represents the thorniest problem. On the one hand, as ores cannot be delivered to the factory, it is difficult to sustain production. On the other hand, finished products cannot leave the factory and can only be stockpiled. The price drop of lithium carbonate, coupled with the inability to maintain the price of battery cathode, adds to the producer’s anxiety over delayed deliveries.

Weaker market demand is taking a toll on enterprises

Most customers are less willing to buy products, the survey revealed. A NEV sales outlet operating in Zhejiang sold over 100 vehicles in March. Yet, the first half of April saw sales of only seven units.

The charging station sector is also lagging. During the Covid-19 pandemic, the closing of charging stations and the reduction of trips have drastically reduced car owners’ need for charging, which has resulted in the closing of less-used charging stations.

A leading charging station operator based in Taiyuan, North China’s Shanxi province, has shut down part of its charging stations in view of the drastic decrease in use. To make matters worse, the operator has delayed payments because of heavy losses incurred by its public quick-charging stations.

Online car-hailing drivers have seen their daily income slump from 500–600 yuan to 200–300 yuan, as mentioned by some of the respondents.

The pandemic’s impact on the future of the industry

The Covid-19 pandemic has become a new normal.

As the survey shows, 73.7% of the respondents regard it as a decelerator for the NEV industry, 15% argue that it has no effect on the industry, while the remaining 11.3% see it as an accelerator.

However, the respondents’ expectations about the future of the NEV industry are slightly more optimistic. More than 66% said that the Covid-19 pandemic will have a negative effect on the future of the industry, while 18% said that it will have no effect, and the remaining 15.8% thought it will speed up the development of the NEV industry.

Given that that the Covid-19 pandemic has a considerable impact on the business community, a few NEV-makers have entered a self-rescue mode.

After taking stock of pandemic situation and supply of auto parts, SAIC Volkswagen Automotive Co. Ltd. has begun production at reduced capacity in an effort to fulfill its orders.

Similarly, SAIC General Motors Corp. has enabled closed-loop production at its Pudong-based factories, asking their workers to sleep on the floor in its workshops. Meanwhile, Chevrolet, Buick and Cadillac have stabilized their production, although at a lower capacity.

At a battery service provider offering battery recombination and equalization services for bus companies and operators, the staff members have had to suspend their main business and stay at home because of the pandemic. Instead, they have shifted their focus from services to products by manufacturing batteries available for cascade utilization. For example, they export batteries with a smaller storage capacity (10kWh) to developing countries suffering from unstable grids.

Another example is a battery-recycling company based in Guangdong’s Foshan that collects used batteries directly from its clients. For safety and environmental reasons, these clients like to dispose of their batteries as quickly as possible. Previously, the company would take care of this by assigning people to go and pick up the batteries, but because of Covid-19, the company has to turn to local recycling points that can help with temporarily storing the batteries, a service that comes at a large cost. In this way, even though the purchase cost is slightly higher, the centralized collection at local recycling points has made the collection of used batteries more efficient.

As the Covid-19 pandemic is still spreading across China, Shanghai’s lockdown measures are being emulated in other parts of the country. In particular, on expressways, the key to transportation and logistics, prevention and control measures are stricter than ever. This, along with other prevention and control measures, will continue to have a negative impact on the NEV industry.

The Electronic Vehicle (EV) Observer is a new media platform providing professional EV industry information services to clients in new energy and intelligent automobile industries.

The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.

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