Mercedes-Benz recently requested the government to permit its suppliers to resume production in the northern Chinese port city of Tianjin, warning of a major hit to sales if the factory suspensions continue.
Why it matters: The company’s warning reflects the urgency felt by many to restart China’s economy after a country-wide supply chain disruption and labor shortage following the Covid-19 crisis. It also underscores Beijing’s limited options in minimizing risk while tending to the country’s economy.
Details: Mercedes-Benz asked Tianjin’s municipal government late last week to allow its 19 parts suppliers to resume production in the city’s Wuqing district, according to a report from the Economic Observer that has since been removed.
- In a letter sent to local authorities and obtained by media, the German automaker’s joint venture (JV) with China’s BAIC Group said it would face a temporary shutdown if its suppliers could not return to work, since its spare parts inventory only buffered production for a single day.
- The company asked that its suppliers be allowed to deliver some products to its factory in Beijing on Feb. 8 and restart operations in two days, adding that it would lose more than RMB 400 million (around $58 million) each day that operations were suspended beginning Feb. 10.
- A company insider confirmed the letter to Chinese media Caixin on Tuesday, saying that the JV calculated the losses based on its revenue figures. The Beijing factory has resumed small-scale production on Monday, he added.
- Wuqing district is an industrial auto manufacturing zone where more than 500 Chinese auto part suppliers are located, including those that make auto chassis, gearboxes, and other components. The district government has not revealed a timetable for resident companies to resume operations.
- Mercedes moved into the Chinese electric vehicle market with the launch of its first domestically made EV model, EQC, in October, which is manufactured at the Beijing plant. The all-electric compact luxury SUV, with a RMB 579,800 starting price, had combined sales of just 320 units in November and December, according to figures from Chinese media outlet Sohu Auto.
Context: In its latest efforts to restart the economy while curbing the spread of the virus, China has required businesses to deploy workers with sufficient inventory of protective face masks and other supplies among a list of safety measures before reopening their factories.
- A growing number of local governments including Tianjin have ordered companies to stop non-local employees from returning to work to minimize health risks.
- Tesla is among the few automakers that have reopened manufacturing facilities in Shanghai this week as scheduled, as well as its airbag supplier Joyson Electronic, both with support from the local government.
- Volkswagen on Monday said that all of its plants in its cooperation with Chinese partners FAW and SAIC will restart operations by the beginning of next week at the latest.
- Meanwhile, General Motors expected business operation in China to resume on Saturday, although some plants with local partners will “have a staggered start,” according to a Reuters report.