Coronavirus Outbreak: COVID-19 and the 2020 Global Auto Sales Forecast

From World Economic Forum, 2/26/2020:

• Coronavirus, which began in Wuhan, China, has shut down factories.
• Car sales in China fell 92% in the first half of February.
• The impacts are being felt around the world, as shortages affect production. 

As Chinese companies attempt to restart their operations after the recent nationwide shutdown to try to prevent the spread of the COVID-19 coronavirus, it’s clear that the mounting economic effects of the outbreak are leaving their toll on the country’s automotive sector.

Chinese car production stalled 

China is the world’s biggest car market, and Wuhan, the city at the center of the outbreak, is known as a “motor city” for being home to auto plants including General Motors, Honda, Nissan, Peugeot Group and Renault. For Honda alone, Wuhan accounts for about 50% of total production in China. In 2019, Hubei Province, of which Wuhan is the capital, was the fourth-largest car producer in China, with about 10% of the country’s car-making capacity and produced 2.24 million vehicles.

As the coronavirus spread, many auto companies across the country closed their doors as part of the recent nationwide shutdown. In addition to the auto companies based in Hubei, for example, Tesla’s new factory in Shanghai shut down, postponing the production date of its Model 3, and Volkswagen postponed production at all of its Chinese plants that it runs in partnership with SAIC. 

Largely as a result, car sales in China fell 92% in the first half of February, according to the data from the China Passenger Car Association (CPCA). China’s association of automobile manufacturers recently forecast a 10% decrease in sales for the first half of the year and 5% decline for the full year. If many factories close until mid-March, it could lead to reduction of 1.7 million vehicle production in China, according to IHS Markit. 

With many workers remain quarantined at home and supply lines affected, many factories are struggling to reopen or regain full capacity. Hubei recently announced it would extend the shutdown of non-essential businesses until 11 March. In addition, China’s annual auto show in Beijing, originally scheduled for 21 April, has been postponed, among many other events that have been cancelled or delayed in response to the outbreak.

China’s economy predicted to grow at its slowest rate since the financial crisis.

Image: Image: Reuters

Domino effects felt around the world

The impacts on the auto industry are being felt beyond China’s borders, as shortages of supplies from China stall production around the world. 

For example, Hyundai and Kia recently stopped several assembly lines in Korea and Nissan announced it would suspend its auto production in Japan. General Motors suggested that production outages could affect plants in Michigan and Texas, Jaguar Land Rover warned the virus could create problems at its assembly plants in Britain, and Fiat Chrysler Automobiles CEO’s Mike Manley said that production at one of the European plants may be suspended by the end of February.

Auto companies are fighting back 

In response to the virus, many auto companies are looking for solutions to get back to work. 

For example, with customer traffic in traditional dealerships heavily reduced, some carmakers turned to digital solutions. Besides new automotive players like NIO, XPeng, who were born with online-to-offline genes, many traditional automotive brands, including Volkswagen, Nissan, SAIC and BMW, turned to online shopping for cars using tools including virtual reality and live broadcasts to stimulate sales. 

In response to a severe shortage of facial masks, SAIC-GM-Wuling Automobile (SGMW) announced it would produce masks, which can help prevent the virus infection via respiration. SGMW worked with Guangxi Defu Technology, who is an interior parts supplier, to install mask production in Guangxi Province. There will be 14 new production lines for both medical masks and N95 factial masks with the planned volume of 1.7 million per day. The first batch of 200 thousand masks from SGMW were finished on 9 Feb.

Meanwhile, automakers BYD Co. and GAC Motor Co. also announced it would produce masks and disinfectants at their factories. The planned capacity of BYD production is 5 million masks and 50 thousand bottles of disinfectant per day, with the first batch donated to drivers of public buses, taxis, ride-hailing fleets and volunteers fighting the outbreak.

As businesses resume operations, there may be a surge in growth in the automotive market, but it will take time to go back to normal levels. Still, the coronavirus outbreak will surely accelerate industry consolidation and transformation.

From CNBC, 2/26/2020: 

Coronavirus causes Moody’s to slash global vehicle sales forecast for 2020

Investor Service is slashing its global vehicle sales forecast as the coronavirus outbreak reduces demand and disrupts automotive supply chains. The firm now expects global auto sales to slump 2.5% in 2020 instead of a 0.9% drop previously expected. Moody’s cited the COVID-19 epidemic as well as stricter emissions regulations for the overall decline in vehicle sales from 90.3 million to 88 million.