China’s automotive industry is expected to take a massive hit from the rapid spread of the corona virus in the last two weeks, at least in the first quarter of the year but very possibly for longer.
Hubei, the central Chinese province of around 60m people at the epicentre of the outbreak of the virus, remains in lockdown with the streets of the capital Wuhan largely deserted.
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Public transport in and out of the province has been stopped while broader intercity travel within China has also been significantly curtailed as the central government attempts to slow the nationwide spread of the disease.
Key trading partners such as the US, Europe and south east Asia have also cut flights and other transport links to China as they look to slow the virus’ global spread, while stock markets around the world fell sharply last week.
Chinese stock markets opened for the first time since the Lunar New Year holidays on Monday (3 February) around 9% lower and analysts expect the sell off to continue in the coming days and weeks.
Many provinces in the country have extended the Chinese Lunar New Year ‘holiday’ by a week – until 10 February.
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By GlobalDataThe latest official figures released by the Chinese government on Monday suggest more than 17,000 people have been infecteded in the country, resulting in about 360 deaths.
But these figures are thought to grossly underestimate the true scale of the problem in the country with fears rising as images of bodies being carried out of apartment buildings are broadcast globally.
Meanwhile, the first overseas death from the virus was reported today in the Philippines.
Many international automotive firms including Bosch and Magna International have suspended executive travel to China until the end of the month and have extended plant closures across the country. PSA Group evacuated foreign staff and their families from Wuhan last week.
Bosch has 23 automotive manufacturing facilities in China, including two in Wuhan, while Magna operates 68 employing around 19,000 people.
Volkswagen said its joint venture plants in Jilin province will stay closed until at least 10 February, while similar steps have been taken by Shanghai based SAIC Motor, Toyota, Ford and BMW and many other vehicle manufacturers.
Dongfeng said no decision has been made on when its Hubei based joint ventures with Renault, Honda and PSA Group would resume operations.
According to the China Passenger Car Association (CPCA), 2.24m passenger vehicles were produced in Hubei province last year, or almost 10% of the nation’s total.
Local analysts have noted that visits to vehicle dealers across the country have fallen dramatically in the last two weeks, prompting fears production and sales could decline sharply in the first quarter of the year.
CPCA secretary general Cui Dongshu said vehicle production in February would take a huge hit and sales in the first two months of 2020 fall by at least 20% year on year.
There is also growing concern that many thousands of factory workers may struggle to get back to work next week because of extensive country wide travel restrictions.
Joseph Massaro, CFO for auto technology supplier Aptiv, on an earnings conference call last Thursday said he expected Chinese vehicle production to drop by 15% in the first quarter and by 3% over the full year, adding “we do not see this being a full year issue at the moment”.
Tesla CFO Zach Kirkhorn last Wednesday said he expected a delay in the ramp up of Model 3 production at the new Shanghai plant, adding the virus “may slightly impact profitability in the first quarter”. He added “we are also in the early stages of understanding to what extent we may be temporarily impacted by the coronavirus”.
Jaguar Land Rover said the virus outbreak could impact its 3% profit margin forecast for fiscal 2020, at a time when it was making progress on a turnaround plan to improve its Chinese sales.
With reports of new infections in China and elsewhere rising sharply each day, opinions of the impact of the virus may have changed significantly since last week.
It is impossible to predict how long it will take the Chinese government to bring the outbreak under control.
The danger is business could be disrupted for months with consumer and business confidence affected for even longer – despite huge stimulus measures expected from the central government this year to support markets and the banking sector.
