China: car sales crash by 92 per cent. In Italy, Italdesign shuts down. The Beijing and Geneva motor shows are postponed. Coronavirus is bringing the global car industry to its knees, bound together by a single thread: components made in China.
The situation is fluid. Very much so. Perhaps too much so. Yesterday, Italdesign, a Turin-based design firm and part of the Volkswagen Group, closed the gates of its Nichelino plant after an employee tested positive for coronavirus. More than a thousand employees have been sent home: "We are trying to identify all the people who came into contact with the colleague in recent days," reads a company statement. The Beijing motor show, originally scheduled from 21 to 30 April, has been postponed to a date yet to be announced, as has the Geneva motor show, which was due to run from 5 to 15 March: "We are very sorry about this situation, but the health of participants is our priority. We are faced with a force majeure situation that represents a tremendous loss for the manufacturers who have invested in their presence here in Geneva. We are confident you will understand the reason for our decision," declared president Maurice Turrettini.
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In China, as reported by the British outlet The Guardian, the collapse in domestic sales recorded by the China Passenger Car Association (CPCA) due to the coronavirus epidemic is reaching alarming proportions, with a drop of 96 per cent in the first week of February and 92 per cent in the first half of the month. That said, there are also encouraging signs: outside Hubei province, FCA has reopened its Guangzhou plant, and General Motors, Toyota and Honda have also decided to gradually reopen their production sites in China. For everyone, workplace safety remains the priority, and any restart of production facilities is in any case hampered by local authority regulations, which have required workers coming from critical areas to remain in quarantine in order to prevent any infected individuals from spreading the virus in the workplace. In short, a difficult situation that is compounding the already serious state of the automotive industry, whose balance sheets have been under strain since 2019 owing to the heavy technological investments demanded by electrification, autonomous driving and emissions reduction.
The problem, however, is more complex — and bigger — than it might appear. This is clearly a situation affecting many sectors of the economy and industry. The car industry, though, risks paying the heaviest price for the coronavirus earthquake. And there are many reasons for this. Chief among them is that manufacturers have been dependent for years on Chinese industry, which supplies a vast array of parts and components. Analysts fear that factories around the world risk grinding to a halt if component plants in China remain closed for much longer. And given that Hubei, the Chinese province at the centre of the epidemic, announced just a few days ago that it would extend the closure of non-essential businesses until 11 March, things could get even worse. Some examples? In the United Kingdom, Jaguar Land Rover announced a few days ago the risk of a halt to local production starting next month: "if delays in deliveries from China persist into March, production in the UK would be seriously at risk," Ralf Speth, head of the British brand, told CNN. Concerns also surround the Daimler Group, which last year sold nearly 700,000 Mercedes-Benz cars in China — more than double the number sold in the United States — and which is now suffering from the sales freeze in that very market. Moreover, even if car factories in China were to reopen in the near term, it will take months to return to normality.
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The problem is that it takes very little to jam the mechanism… The entire car production process is effectively dependent on the Chinese auto parts industry, and "it only takes a single missing part to stop an entire assembly line," said Mike Dunne, a former GM executive, in an interview. As Dunne has pointed out, in the past there have been events such as fires or natural disasters that have shut down one or more suppliers, but no event has ever hit the global car industry as hard as this one. To grasp the scale of the problem: China is the world's most important supplier of automotive parts. While some of these parts go to retail auto parts shops, a large proportion feeds assembly lines across the world.
The range of parts runs from chips for on-board computers and electronic systems dedicated to ADAS, to screws and bolts, right through to a host of parts and components that are often invisible to the eye yet absolutely essential. This is the reason that led Hyundai and Kia, several days ago, to shut their Asan plant in South Korea, precisely due to a shortage of parts from Chinese suppliers. The examples are numerous. In Wuhan, the epicentre of the epidemic, Dongfeng Motor Corporation has its headquarters — one of China's largest car manufacturers and also a supplier in various capacities to Honda, Groupe PSA and Renault. The Chinese region is also home to many joint ventures with component suppliers such as Bosch, Valeo and Borgwarner. Among the automotive giants, analysts say the German Volkswagen Group is also at risk — a group that encompasses many brands (Audi, Seat and Skoda, to name a few) and operates numerous plants in China in the Shanghai area, far from the epicentre but at risk of restrictions and slowdowns. The list is long: General Motors assembles 19 per cent of its production in China; Nissan has announced that its Kyushu plant in Japan will have to undergo some "production adjustments". Renault is weighing the suspension of production at its Busan plant in South Korea due to disruptions in the supply of Chinese parts. Suzuki is considering the possibility of sourcing components from outside China.
The effects of coronavirus have left their mark on Tesla too, which, after the production halt imposed by the Chinese authorities, has just resumed operations at its gigafactory in Shanghai, a strategic site for the production of the Model 3, whose deliveries will be subject to delays and disruptions of various kinds. On the subject of electric mobility, China not only produces between 60 and 70 per cent of the lithium-ion batteries that power electric cars, but is also the market that absorbs more than half of the electric cars produced worldwide. Other carmakers are closely monitoring the situation in China, but it is too early to say what the impact will be on a global scale: "It's a very fluid situation," GM CEO Mary Barra declared when speaking with investors a few days ago. In the meantime, the car market is trembling…
