Coronavirus: Shanghai’s vehicle assemblies sit idle as ‘China’s Motown’ is paralysed by a citywide lockdown to curb the Covid-19’s spread

Shanghai is China’s “Motown,” churning out 2.83 million vehicles in 2021, or 10.7 per cent of the nationwide output in the world’s largest vehicle market
SAIC Motor, China’s largest state-owned carmaker, said it would conduct a stress test on Monday to resume production

Shanghai

Daniel Renin Shanghai

Published: 7:26pm, 15 Apr 2022

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Shanghai’s automotive industry is teetering on the edge of a precipice, as a citywide lockdown amid a Covid-19 outbreak idled assemblies and component makers that together produced one in every nine of the automobiles produced in China last year.

Automakers may have to stop all production by May if the supply chain disruptions caused by Shanghai’s lockdowns are not resolved soon, according to a blog post by Xpeng’s co-founder and chief executive He Xiaopeng, whose company assembles smart electric cars in the Guangdong provincial city of Zhaoqing.

“It is quite likely that all of China’s vehicle assemblers will have to suspend production in May if the supply chain [vendors] based in Shanghai and its neighbouring areas cannot restart operations,” He wrote on Weibo. “The good news is that some ministries and relevant authorities are trying to coordinate. We hope a concerted effort can be made to support the industry.”

Shanghai, the financial and commercial centre of China, is also the country’s “Motown,” churning out 2.83 million vehicles in 2021, or 10.7 per cent of the nationwide output in the world’s largest vehicle market. Jilin in northeastern China assembled 2.42 million units last year, or 9.2 per cent of the national total.

The automotive industry is also one of the country’s biggest employers, providing jobs for one in every six of the country’s workforce of 800 million people, according to analysts’ estimates.

Dozens of carmakers have their car plants in Shanghai, mostly in the Pudong industrial area on the Huangpu River’s eastern bank, transformed from paddy fields into one of the most important manufacturing centres in the country in just four decades.

General Motors and Volkswagen both make cars here with their Chinese partner SAIC Motor. Tesla’s Gigafactory 3, the sole wholly foreign-owned car factory in China, is also located at the Lingang free-trade zone in Pudong. Tesla may resume work on April 18 after three weeks of suspension, Reuters reported on Friday.

Tesla’s Gigafactory 3 in Shanghai on Friday, Dec. 25, 2020. Photo: Bloomberg

Shanghai’s local authorities locked the entire city down on April 5, and confined most of the city’s 25 million residents – except emergency workers and medical staff – to their homes to contain a Covid-19 outbreak.

Factories that wanted to maintain their production had to operate in so-called closed loops, requiring staff to sleep on-site with zero contact with outsiders. Because most factories lack the facilities to accommodate every single employee at the workplace, they had to operate at reduced capacity.

Tesla has halted production of its Model 3 electric cars and its Model Y electric crossovers since March 28 because it could not obtain enough protective gear to run its factory under the closed loop.

‘Just in time’ morphs into ‘just in case’ as Covid-19 cuts supply chains

Tesla’s problem has been replicated across thousands of the city’s component makers, spilling over to nearby areas like Kunshan in Jiangsu province, which was partially ordered into mass tests last week, and Zhejiang province.

The resulting strain on the supply chain is reverberating across the entire nation and the whole industry. Xpeng’s rival Nio had to suspend its production of electric cars in the Hefei provincial capital of Hefei from April 9 to 13 because its supply of vital components were disrupted in Shanghai, Jiangsu province and in Jilin.

Automakers elsewhere are slowly cranking up their factories while Shanghai is grinding to a near standstill.

The paint shop at the BMW-Brilliance assembly at Dadong in northeastern China’s Liaoning provincial capital of Shenyang on August 7, 2019. Photo: Xinhua.

FAW Group, the very first carmaker established by Mao Zedong in the People’s Republic, said it has resumed producing passenger cars for Volkswagen and Toyota Motor in the Jilin provincial capital of Changchun after suspending all output on March 13. Jilin’s Covid-19 caseload has eased since March, reporting 516 new infections on Friday.

In the neighbouring Liaoning province in northeastern China, Brilliance China Automotive Holding said it has resumed making the BMW luxury cars with its German partner in the provincial capital of Shenyang. BMW-Brilliance did not say how many days they halted production.

To alleviate the strain on supply chains, the Ministry of Industry and Information Technology (MIIT) dispatched a team to Shanghai to resume work in 666 key enterprises including chip foundries, carmakers and biomedicine, according to a Friday report by the Xinhua news agency.

SAIC Motor, China’s largest state-owned carmaker, said it would conduct a stress test on Monday to resume production, according to an internal memo seen by the Post. The carmaker’s spokespeople could not be reached to comment.

“SAIC and its ventures may still lack the manpower and raw materials to assemble cars,” said Chen Jinzhu, chief executive of Shanghai Mingliang Auto Service, a consultancy in the city. “It all comes down to how many workers can return to the factories and how many parts can be delivered to the sites since the entire city remains locked down.”

Shanghai reported more than 303,000 Covid-19 infections since the outbreak started on March 1.

The municipal government imposed a two-phase eight-day lockdown from March 28. But the municipality reversed an earlier plan of ending the phased shutdown on April 5 and officially kicked off a citywide indefinite lockdown.