Automakers have been dealing with a headache for just over two years that they no longer know if they will be able to handle and master it anytime soon.
This problem, which is becoming difficult to solve, was caused by the Covid-19 pandemic and has just been exacerbated by the Russian invasion of Ukraine.
That headache is the disruption of supply chains. Concretely, the restrictive measures taken by governments, particularly in Asia and Central Europe, from which many raw materials necessary for the production of vehicles are extracted. These measures have forced car manufacturers to temporarily close their factories for lack of elements and parts necessary for the assembly of their cars.
For consumers, this has led to soaring prices for new and used cars. Delivery times for new vehicles have also been considerably extended.
The temporary suspension of production in such major markets as China and the United States, the world’s two largest auto markets, has also significantly affected automakers’ revenues.
New containment in Shanghai, cradle of car factories
The reopening of economies at the start of the year brought a wind of hope. But it seems that this hope was short-lived. On the one hand, the prices of raw materials such as nickel, aluminum and palladium have reached unprecedented levels. On the other hand, the pandemic seems to be starting again in Asia, in this case in China, where many car manufacturers have factories either on their own or in joint ventures with local companies.
China announced on Sunday that it would lock down Shanghai, its largest city, in two stages to carry out Covid-19 tests over nine days. Shanghai authorities said they would divide Shanghai in two for the tests, using the Huangpu River which runs through the city as the border.
Shanghai is at the center of a new outbreak of Covid-19 cases in China, with 3,500 new cases reported in the city on Sunday.
This decision has led some automakers to close their local factories again. This is the case of the electric vehicle manufacturer Tesla (TSLA) – Get the Tesla Inc report. The company had notified its workers and suppliers from the closure of the world’s largest electric vehicle factory in Shanghai. Tesla’s Shanghai factory, which opened in January 2020, produced 56,515 electric vehicles in February, including 33,315 for export. The plant is being ramped up to eventually produce 1 million electric vehicles each year.
The direct consequence is that consumers who hoped to receive their vehicle soon will still have to wait. In addition, it reduces the inventory of vehicles available, which is likely to create an imbalance between supply and demand, ultimately creating a price spike.
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Unlike its rivals, GM (GM) – Get the General Motors Company Report decided not to close its Chinese factories. Production is therefore not going to stop. To do this, the group led by Mary Barra has found an ingenious way that is likely to be copied by other companies in areas where there are confinements.
Employees working in factories belonging to the GM-SAIC joint venture have been asked to sleep there, a source familiar with the matter, who requested anonymity, told TheStreet.
Employees isolated from the rest of the world
GM also asked for exceptional passes for the company’s trucks to continue delivering the vehicles. These measures are called “closed-loop” management, the source said.
Closed-loop operation means that all workers stay in the factory all the time. Employees live, work and sleep isolated from the rest of the world and especially from their families to prevent the spread of the virus.
Production at the SGM plant in Shanghai is continuing with the appropriate sanitary measures in place (closed loop requirement), the source added.
According to the Shanghai government’s pandemic control measures, companies are required to either operate in a closed loop if necessary or have employees work from home.
Similar measures were put in place during the Beijing Olympics in February, particularly regarding people working on this global sporting event.
GM declined to comment.
The company builds Buick, Chevrolet and Cadillac vehicles in a joint venture with Chinese state-owned automaker SAIC east of the Shanghai Huangpu River.
volkswagen (VLKAF) ensures for its part that its activities continue normally in China but the production site of the German group is located in the west of the city where the confinement is supposed to begin on April 1.