China’s car industry is suffering: what happens to Tesla, BMW and Volkswagen

Tesla, BMW and VW closures in China continue as Shanghai sees record cases of COVID.

The closure of the Tesla plant took at least 12 days, with much-needed semiconductors gathering at manufacturers amid a shortage of truck drivers, and bankers are camping in their offices as the Shanghai COVID-19 blockade disrupts China’s financial center business.

Cases are at a record high in the city, now the epicenter of the worst outbreak in China since the beginning of the pandemic, and the blockade has been extended indefinitely. While the country is sticking to its rigid COVID-Zero isolation manual, President Xi Jinping’s request to limit the economic consequences is becoming increasingly difficult to achieve in the face of the highly transmissible omicron variant.

Blockages and isolation measures threaten to slow down China’s economic growth this year, below the government’s 5.5% target. They also risk further damaging already strained global supply chains, with companies from chip giant Semiconductor Manufacturing International to a South Korean noodle maker being hit hard.

Problems continue in China

The pioneer of electric cars Tesla told some suppliers and workers that its factory in Shanghai – which has been closed since the city went into a gradual blockade on March 28 – will remain closed at least until Thursday.

Following a two-day separate shutdown in March, Tesla has now lost 12 days of production in recent weeks, including this week’s holiday. Tesla’s first non-native Gigafactory produced half of its vehicles last year and builds cars not only for the lucrative market in China, but also for export to Europe and other parts of Asia.

Some companies, including chip giants Taiwan Semiconductor Manufacturing and SMIC, as well as the iPhone assembler Pegatron, have managed to keep the facility running by implementing a so-called closed-loop system in which workers live on site and are regularly tested. For people like SMIC, a new hassle is emerging: securing the trucks they will need to bring their customers’ chips.

South Korean companies are also affected, operations at Shanghai’s Nongshim noodle maker, Orion confectionery and Amorepacific cosmetics factories have been suspended since earlier this month.

Singapore’s Spindex Industries, which supplies precision components used by the automotive industry, has extended the closure of its Shanghai plant until April 10 or whenever local authorities allow work to resume. Uncertainty about the extension of the blockade is expected to have a negative impact on the company’s financial performance, according to an exchange dossier.

BMW and VW problems

Meanwhile, BMW production was shut down in the northern Chinese city of Shenyang for two weeks after the industrial center was shut down last month in an attempt to curb the spread of COVID-19.

The carmaker has suspended production at both factories in Liaoning Province on March 24 after the city government imposed stricter controls on residents since March 22, according to a Beijing spokesman.

BMW “follows the Shenyang municipal government’s tight COVID-19 prevention controls” and “takes a step-by-step approach to resuming production at our Shenyang plants,” the company said in an email.

“We will continue to monitor closely the pandemic situation, implement strict pandemic prevention measures in the workplace and adapt our production plans accordingly,” he added, without giving further details about the date of resumption.

The factories produce models including the BMW 3 Series and 5 and have a total annual production capacity of about 700,000 units.

Volkswagen Group China factories in Shanghai and Changchun remain closed on Wednesday and Thursday due to the COVID situation, a company spokesman said on Wednesday.

The company will continue to monitor the situation on a daily basis, the spokesman added.

The Volkswagen plant in Shanghai has been closed since April 1.