CATL and BYD are facing the prospect of cutting electric vehicle battery production after authorities in China’s southwestern province of Sichuan extended the power cuts from six days to 11 days, local media reported.
Why it matters: The extended duration of electricity outages has forced multiple Chinese auto firms to idle production for a week and sparked concerns about worsening supply-chain disruptions to the industry following the country’s strict Covid-19 control measures.
Battery production taking a hit: On Aug.20, Sichuan province extended its six-day power cuts by five days and ordered all factories to remain shuttered until this Thursday, according to a notice issued by the provincial government and obtained by financial media outlet Yicai.
- Tesla’s supplier CATL has a production facility in Yibin, Sichuan, which currently produces 30 gigawatt-hours (GWh) of batteries annually. The city still faces an electricity supply crunch with no likelihood of local factories resuming operations in the coming days, Chinese media outlet Caixin reported on Aug. 21, citing people with knowledge of the matter.
- Manufacturers from several districts in the neighboring Chongqing municipality, where BYD has a battery plant with an annual production capacity of 35 GWh, are being forced to slow assembly lines or completely halt production on the back of extended power cuts. The Chinese auto major develops and builds batteries mainly for its vehicles at the facility.
- BYD has turned to Shaanxi authorities for help, after the latter sent a letter to their Chongqing counterparts last Thursday requesting Sichuan to prioritize electricity supply for the battery maker’s local facilities, the Caixin report said. The Shenzhen-based automaker has a regional headquarters in Shaanxi.
LCD production also taking a hit: Sichuan’s expansion of power cuts will also lead to a 20% decrease in large-sized LCD production for TVs worldwide, Li Yaqin, an analyst from Sigmaintell, told Yicai.
- Li said that the extended 11-day power cut has had a notable impact on this industry. Production is estimated to decrease by 45,000 LCD base plates, based on production lines at BOE and BHK both being affected.
- Production of widely used LCD screens will take a larger hit than OLED, which is mainly used in smartphones. As Chongqing, a municipality next to Sichuan, follows suit by limiting power supply, conditions for the industry are expected to worsen due to BHK’s LCD production line. According to Li, that 20% estimate may even be conservative. However, the analyst also highlighted the positive side of this issue, saying that the power cuts would help to clear factories’ inventory and stabilize prices.
Context: Sichuan’s weeks-long power restrictions have had a spill-over impact on the Chinese auto industry, with Tesla and Volkswagen’s partner SAIC having difficulties getting enough supply from local parts makers. Sichuan-based automakers Changan and Seres have also idled production facilities since Aug. 15.
Ward Zhou contributed to the reporting of this story.