No one ever expected that the face mask could be a strategic material, but now the whole country is looking for them. Many pharmacies have been sold out for weeks. Local governments have been caught fighting each other over shipments of medical materials, and factories have had to delay resuming work because they can’t provide masks to their workers.
China needs more masks.
China reached production of 20 million masks per day on Feb. 3, and that number doubled in just 14 days. However, it is still far from meeting Beijing’s urgent request to produce more than 100 million units per day, which has pushed Chinese premier Li Keqiang himself to stay on top of that, touring mask factories and asking for all-out production late last week.
Companies are answering Li’s call, with automakers in the lead in setting up mask production lines at factories. By the end of this week, automakers are expected to produce 8 million masks per day, adding around 15% to China’s current output, as well as other medical supplies like disinfectant.
In the short term, in-house mask supplies will allow carmakers to get back to business. In the longer view, face mask production may be a good business with small profits but quick turnover for them, as the epidemic is sweeping rapidly around the globe.
Automakers’ quick switch to mask production was originally intended to fit their own needs. The government has banned manufacturers from resuming operations without sufficient precautions and safety measures.
The Shenyang municipal government last week helped BMW resume production by offering the company two masks per each employee per day, after the company made a generous donation of RMB 30 million (about $4.3 million) to local charities. Tesla, as always, got the red carpet treatment from local authorities with a special grant of 10,000 masks for workers in its Shanghai Gigafactory, allowing it to resume production on Feb. 10.
However, a nationwide shortage has forced most automakers to source their own. Many have turned to parts suppliers and subsidiaries to set up mask production.
SAIC, General Motors’ China partner, and its suppliers were among the first to make a move. Guangxi De Fute is based in Guangxi province, less than 100 kilometers from a joint plant formed by SAIC and GM. They normally supply sound absorption materials to SAIC, China’s biggest automaker and its partners. Setting up a total of 14 production lines by the end of this month, the parts supplier expects to reach a capacity of 1.7 million face masks per day, reported Chinese media.
Warren Buffet-backed electric vehicle company BYD made a big bet, setting a more ambitious goal to produce 5 million face masks per day by the end of this month. 5 million masks would be around one-tenth of the country’s current total capacity. BYD, China’s biggest EV maker also announced plans to produce disinfectant, targeting 300,000 bottles each day. State-owned auto major GAC followed suit by starting mask production last week, and the Southern China’s auto giant expected the output to reach 1 million units by the end of this week.
The price of the big shift is actually quite low. For a large manufacturer, it should be easy to set up mask production lines without diverting significant resources from regular business.
The price of equipment is peanuts for large automakers: An advanced production line capable of producing 180,000 regular surgical masks per day is priced at only around RMB 1 million and can be delivered in three days, including a packaging line and a disinfecting system, according to people with knowledge of the industry. Mask production is also highly automated, requiring only a single human to oversee a production line, a mask production equipment supplier told TechNode.
With expected profits of RMB 1 profit per mask, a production line can cover RMB 1 million in set-up costs in under a week. There is a good business case for manufacturers to make the switch, so long as they have assured access to raw materials, a representative of a mask manufacturer told Caixin.
New big money
There’s money in masks, and someone is already trying to cash in—but whether it is the companies themselves, rogue employees, or just online scammers nobody knows for sure.
All virus-related medical supplies, including protective clothing, face masks, and goggles have been placed under government control, the Ministry of Industry and Information Technology said during a Feb. 2 media briefing in Beijing. While no regulations explicitly forbid automakers to sell medical equipment on the market, each has vowed that production will be “planned and managed” by local governments.
Just one day after the Shenzhen-based OEM BYD announced its mask production on Feb. 8, WeChat accounts began claiming to sell them. A product brochure circulated on Chinese messaging app WeChat and obtained by TechNode, promised that BYD will start delivering goods on Feb. 17 with a minimum starting amount of 10,000 units per order. BYD has disavowed these brochures, warning that customers who attempt to buy masks through unofficial channels will be cheated.
In WeChat messages posted to Weibo, accounts listed in the sales brochures asked for the suspiciously low price of RMB 1.8 per unit. When TechNode called the phone number listed in the brochure, it was answered by a receptionist who claimed to represent BYD but said that masks were available only to the government.
In another “sales notice” shared by netizens, people claiming to represent BYD said they will take orders but “only from big organizations” with a minimal starting amount of 1 million units per order. These numbers which were later confirmed by a company representative to Chinese media Nanfang Metropolis Daily. The person stressed that BYD has not started sales to the public, adding that governments and hospitals are first in line for supplies.
Advertisements claiming to offer BYD masks remain circulating on Chinese social media with prices ranging from RMB 2.4 to RMB 4.2, as of Feb. 28.
While you can’t buy a BYD mask yet, that will likely change as shortages ease. In a statement recently sent to Chinese media, BYD said it is expanding production to with the intention of supplying its supply chain partners, once demand from the government is fully met. “If sales begin in retail markets, we will definitely announce it,” BYD added.
Investments in public service production will probably yield windfall profits soon. According to people familiar with the matter, local governments currently subsidize investment on mask production facilities by at least 50%, and since the price is still going up, investors could cover their costs almost immediately after purchase.
Looking ahead, industry largely expects a massive growth in the mask demand as Chinese citizens will have a much stronger awareness of wearing masks in public spaces for personal health over the long term. Face masks will have an even longer life-cycle if the coronavirus outbreak finally becomes a “global pandemic,” a person close to the matter told TechNode.
CLARIFICATION: An earlier version of this article described De Fute as a parts supplier to SAIC-GM, a JV that is GM’s main presence in China. Representatives of GM have since told TechNode that it is in fact a supplier to SAIC-GM-Wuling, a separate JV formed by the same two companies and a third partner.