COVID-19 impact on China’s automobile industry 03-15-2020

Summary: Domestic automobile industry delayed time of resumption, postponed launch plans, and faced shortage of components and weak performance in real economy due to the current epidemic control.

Automobile factories delay reopening

According to public data, during 2019, the province of Hubei produced 8.8% of all cars produced in China, ranking fourth among all Chinese provinces in terms of production volume. The same data shows that at the end of 2018, over 1,482 companies in Hubei produced and sold cars. Furthermore, the city of Wuhan, the capital of Hubei, is one of the four main cities of China for selling cars, including American, Japanese, French, British, and Chinese brands.

Among these companies, Dongfeng Automotive is located in Wuhan. In order to take measures against the coronavirus, Shenlong Automotive stated that it would not resume business before February 14, and Dongfeng Honda also tentatively decided on Febraury 14 to resume business. Dongfeng Renault, Dongfeng Passenger Vehicle, Dongfeng Business Vehicle, and other company branches also postponed their resumption of business.

Honda and Toyota hit especially hard by virus

Due to the coronavirus, the reopening of factories in Hubei has been postponed for many companies, including Toyota, Honda, Hino Motors, Tesla, Ford, and Dongfeng Automotive. These companies plan to enter a period of halted production. Honda and Toyota are two Japanese car companies with a large sale volume in China, selling 1.55 million vehicles and 1.62 million vehicles in China during 2019, respectively. Chinese consumers display trust in these two companies and consider their products to be of high reliability.

With this halt in production, however, the total company sales of 2020 will likely experience major effects. The most direct effect of the production postponement will be a limited production ability, which in turn will affect how many vehicles the companies are able to sell. Indeed, both companies saw decreased sales during January and February, 2020. Furthermore, not only will the factories producing the main vehicle components be halted, but the assembly locations located later in the production chain will stay closed as well. Without the necessary parts being produced, these companies will undoubtedly experience severe effects with regard to their sales.

Consumers and producers both hesitate to go to market

With regard to consumers, those whose demand for a vehicle is highest are workers who need to travel to factories for work. Due to the delay in factory resumption, these workers must wait longer to receive a salary, and furthermore, the crashing economy is leading to a reduction in business revenue, which affects wages and job stability. Therefore, consumers with a high demand for a vehicle currently possess weaker purchasing power than normal, which will likely cause as many as a third of these consumers to delay their plans for vehicle purchase.

Some analysts claim that due to the development of the virus, laypeople will lose trust in public transportation, which may lead to an increase in vehicle purchases. However, regardless of the demand for vehicles, if consumers do not possess the purchasing power to match their demands, then apart from the aforementioned factory workers, almost all vehicle consumers will be residents of first and second tier cities. However, due to limited trade between cities, these consumers will be temporarily unable to purchase vehicles.

From an industry perspective, if the virus does not slow down, then companies’ plans for releasing new cars will be affected. Any new models that these companies plan to release must be delayed until later in the year.

For more information on China’s automotive market, please check our Li-ion battery China E-News.

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