Last year, when a leading automotive industry body predicted that a prolonged slump in electric vehicle sales would end in 2020, it had no way of knowing what was in store as China prepared for its Lunar New Year celebrations.
The China Association of Automobile Manufacturers (CAAM) predicted in late December that sales of new energy vehicles this year would be no less than 1.2 million cars, the same number sold last year.
This article was originally published in Drive I/O, TechNode’s biweekly newsletter on autonomous and electric vehicles. It was co-authored by Jill Shen.
Just a few weeks earlier, however, people in Wuhan, the capital of central China’s Hubei province, began falling victim to a mysterious respiratory illness. Cases of the disease, now known to be a new coronavirus—belonging to the same family as SARS, MERS, and the common cold—have ballooned. The virus has since spread to every region in China, but infection rates show no signs of abating.
China’s electric vehicle industry now faces compounding difficulties. As the country attempts to stop the spread of the infection, authorities have taken far-reaching measures that could have an implosive effect on the country’s economy, as well as its already-flagging EV market.
Just days before the Spring Festival, the government took the unprecedented step of locking down entire cities in Hubei province, effectively quarantining more than 50 million people. Similar measures have also been implemented in eastern China’s Zhejiang province.
In addition, 11 of China’s 31 provinces have extended the holiday by more than a week to prevent further infections. (The New Year’s holiday began on January 23 and was originally due to end on January 31.) In the commercial hubs of Guangdong and Zhejiang provinces as well as Shanghai, authorities have announced that non-essential businesses should only return to work on February 10.
“These provinces alone are normally responsible for over two-thirds of vehicle production in China,” IHS Markit said in a note.
The research firm now expects that measures will result in a first-quarter production loss of about 350,000 vehicles, down 7% year-on-year. If quarantine measures are imposed until mid-March, that number could increase to 1.7 million units, IHS said. Beijing has set sales goals of 2 million NEVs this year, up 40% compared to 2019.
Should the second figure prove sound, the overall market decline could lead to a shortfall of around 85,000 NEVs for the year, or around 7% of all NEVs sold in 2019, according to TechNode’s calculations.
“How this plays out will be determined by the even more opaque second-round indirect effects on the economy, income growth, and consumer confidence, and thus on the severity of impact on auto sales in the coming months,” IHS said of the overall auto market.
Production delays, supply chain woes
As various provinces prolong the holiday, factories in a number of cities have yet to open their doors, which could put strain on the global automotive supply chain.
“If this situation continues, supply chains will be disrupted. There are forecasts that predict the peak for infections will drag on until February or March,” Reuters quoted Volkmar Denner, CEO of Bosch, the world’s largest automotive supplier, as saying.
Bosch has 23 manufacturing facilities in China, two of which are located in Wuhan.
Bosch isn’t alone. Since the government announced the measure to curb the spread of the virus, the production of vehicles, both electric and gas-driven, has slowed dramatically. Toyota, which sells hybrid vehicles in China, said all its factories in the country would remain closed until February 9, in line with transport lockdowns.
Meanwhile, Honda and Renault, which both have factories with Chinese automaker Dongfeng, will open their factories in Wuhan on February 10. Both companies offer electric cars in the Chinese market.
Other EV makers, including Tesla and Nio, are no less vulnerable to the effects of the outbreak. The Shanghai government has required that the US automaker shut down its production plant in the city until the end of this week. Nio’s vehicles are produced by state-owned carmaker JAC in eastern China’s Anhui province, which has also extended the holiday over coronavirus concerns.
During an earnings call last week, Tesla CFO Zach Kirkhorn said that the shutdown would have minimal effects on the company’s profitability. Nevertheless, Bernstein analysts said that around 82% of Tesla’s retail volume in China comes from the 40 worst-hit cities, while those cities make up 68% of Nio’s sales.
“The latter looks especially vulnerable to a prolonged slump in EV sales,” the analysts said. “We expect EV sales in China to be worse hit than the broader market. Consumer adoption of EVs in China is highly concentrated in the top cities where license plate restrictions and other policies enforce EV purchases.
As the number of confirmed cases of the new virus surges, global automakers and Chinese OEMs have scrambled to make big donations to fight against the outbreak while also burnishing their images. At the time of writing, more than 45 automakers, Tier 1 suppliers, and large auto dealers have provided donations worth RMB 500 million (about $70 million).
BMW, the top premium car seller in China last year, was the first to act—offering RMB 5 million in aid. Chinese auto giant Geely gave a lavish RMB 200 million, with dozens of minivans for medical transport. Meanwhile, state-owned FAW and GAC ramped up support with follow-on donations of RMB 30 million and RMB 8 million, respectively. Even loss-making EV makers including Nio and Xpeng have joined the ranks of generous donors.
Meanwhile, Tesla found itself riding a wave of public outrage. The company initially “did its bit,” according to Zhu Xiaotong, president of Tesla Greater China, by offering Tesla owners free unlimited access to its supercharging network until the epidemic was over. This, however, generated sharp criticism among both followers and critics.
“No donation from Tesla? … Even Nio, a company near bankruptcy, offered several million yuan … Will Tesla do nothing in China other than making money?” wrote a user with the handle “Sailamborghini,” commenting on a post by Tesla on microblogging platform Weibo.
“[You] might as well donate some US-made face masks,” another user using the handle “Xiele-.” Two days later, the American EV giant announced a donation of RMB 5 million for virus control to mollify public anger.
Donations are a form of relief not just for those stricken with the illness but for the companies themselves, given the possible impact on the domestic and global auto market and supply chain if the situation in China gets worse. Currently, the Chinese government allows businesses to deduct donations from taxable income, without exceeding 12% of their annual net profit. Ren, the Evergrande economist, has suggested removing the restriction to boost donations and stabilize the economy.