China’s Zero COVID Policy Threatens Global Auto Production

COVID-19 outbreaks are leading to lockdowns in China’s largest cities presenting new challenges to automakers.

Toyota Motor Corp. and Volkswagen AG shuttered production at four plants in Changchun over two weeks ago when the city 590 miles northeast of Beijing plunged into lockdown to contain a Covid-19 outbreak. The companies report its unclear when workers will be able to return.

The shutdown follows after a COVID outbreak in January halted production for nearly two-weeks in Tianjin factories.

COVID threats escalated this week when China put Shanghai in a phased lockdown to combat a surge in infections. The move forced Tesla to suspend production at its Gigafactory for at least four days. Hino Motors Ltd., Toyota’s bus and truck unit also paused production in Shanghai because of the outbreak.

China serves as a manufacturing powerhouse for automotive supply chains. The country churns out around 25 million cars a year and countless parts. China’s Covid-Zero policy could cause global vehicle production to lose 2% of growth in 2022, equivalent to about 1.5 million units, according to Joshua Cobb, a senior autos analyst at Fitch Solutions. Combined with other supply issues, it will push the industry’s production recovery into 2023

The disruptions compound the issues caused by Russia’s invasion of Ukraine, which pushed up commodity prices, and the ongoing shortage of semiconductors.

Bloomberg estimates lockdowns affect an estimated 71 million people. These shutdowns have a “direct impact on the number of cars we can deliver to customers,” Brian Gu, the president of EV upstart Xpeng Inc. noted in a Bloomberg Television interview.

Bloomberg Intelligence reports: “Mushrooming Covid-19 outbreaks may steer China’s passenger-vehicle sales decline toward the pessimistic end of our 0-8% scenario for the first quarter. Recent lockdowns in Shenzhen, Shanghai, Changchun and other cities have kept buyers away from showrooms and disrupted vehicle production as automakers and suppliers scale back factory output.”

Some observers predict China will loosen its rigid anti-Covid measures. President Xi Jinping called for the economic and social fallout from the nation’s virus elimination strategy to be limited. Though large-scale lockdowns and mass testing continues, authorities are making concessions to avoid severe manufacturing disruptions.

General Motors has maintained production at its joint venture in Shanghai by having its employees work, live and sleep in isolation facilities, Reuters reported.