Car sales drop in April following lockdowns in Shanghai and Changchun

Following lockdowns in two of China’s most important car making bases, the automobile supply chain will remain disrupted in the short term, according to analysts. In Changchun, the capital of Jilin province, China’s oldest carmaker has cut production at some factories since March 13 with no resumption date, as the whole province has been effectively sealed off since March 14. The restricted capacity accounts for 46% of the state-owned FAW Group’s total capacity. In Shanghai, home to another state-owned carmaker, SAIC Motor, as well as Tesla’s China Gigafactory, some key assembly lines have halted production. The disruptions will weigh on China’s auto supply in the short term, as Shanghai and Changchun respectively produced 2.83 million and 2.42 million units in 2021, accounting for 10.9% and 9.3% of China’s total output last year, according to the China Association of Automobile Manufacturers (CAAM).

“If your factory is in locked down areas, certainly you will be impacted. Because what happens is you can’t sustain the same level of production that you used to,” said How Jit Lim, Managing Director with consulting firm Alvarez & Marsal Asia. But as the auto supply chain as a whole is spread out across China, the temporary closures of factories in two major cities may not result in severe disruptions at the national level, Lim said. “Yes, there is an impact. But I think if you look across the total market capacity, it’s not going to bring the entire supply chain of the automobile sector to a halt,” Lim said. The main constraints holding back the resumption of production come on the logistics side, given that assembly-line crews can work in a “closed-loop” system that strictly restricts their movement within the factory area, according to Citic Securities. “For example, about 8,000 to 9,000 workers at SAIC Volkswagen’s Anting factory in Shanghai are working in the factory bubble to ensure production, so there is no capacity pressure for the time being,” it said in a note.

The main pressure comes from the logistics side, as it is difficult to transport parts and other materials across provinces. So, as long as logistical issues are alleviated, production is expected to resume quickly.” Amid the latest Omicron outbreak, Beijing has doubled down on its “dynamic zero-Covid policy”, which puts trust in local authorities to stamp out clusters with lockdowns and restrictions on interregional travel. The policy is weighing on road freight, which accounted for 73.8% of China’s overall freight volume in 2020, according to the Ministry of Transport.

The road vehicle freight flow index, which measures the number of trucks running in a specific region, was 16.45 and 14.38 for Shanghai and Jilin on April 7, respectively dropping by 81.94% and 86.36% year-on-year, according to Wind, a financial data provider in China. As the world’s biggest auto market, China has attracted all major carmakers from around the world to set up assembly lines or joint ventures in the country, all keen to capitalize on China’s huge domestic demand. But lockdowns in various cities have also weighed on auto demand in the country.

According to data from the China Passenger Car Association (CPCA), the daily average retail sales of passenger cars was 39,146 units for the week of March 21-27, down 29% compared with the same period last year. “Considering the trend of the current wave of outbreaks, we estimated that the sales loss caused by the pandemic in April will be about 300,000 units,” CITIC’s note said, as reported by the South China Morning Post.