Coronavirus damages China's auto industry as outbreak worsens

Key Points
  • IHS Markit expects a loss of at least 350,000 units of vehicle production due to the coronavirus shuttering plants until Feb. 10.
  • If the plants remain closed until mid-March, the firm forecasts lost production of more than 1.7 million units.
  • At least 24 provinces, municipalities and other regions in China have told businesses not to resume work before Feb. 10.
Chinese men wear protective masks as they walk in a nearly empty shopping street on February 2, 2020 in Beijing, China.
Kevin Frayer | Getty Images

The extended factory shutdown in China is costing automakers that have idled plants as the government grapples with a worsening virus outbreak that has already claimed more than 420 lives.

Automotive research firm IHS Markit expects automakers to lose about 350,000 units of vehicle production in the first quarter as local Chinese governments keep plants closed to keep the new coronavirus from spreading. China closes its factories, which were supposed to reopen last week, to celebrate the Lunar New Year holiday every year. Government officials have extended the shutdown to Feb. 10 in some provinces.

If the plants remain closed until mid-March, as some industry analysts have speculated, IHS forecasts lost production of more than 1.7 million units for the first quarter. That's a roughly 32.3% decline from its initial expectations before the first patient was discovered in Wuhan, China, in the Hubei province on Dec. 31.

"In this scenario, we might expect the potential of a China-wide supply chain disruption caused by parts shortages from Hubei, a major component hub — and adjacent province closures for the majority of the month of February as a result," the company said in a Friday release.

As of Monday, at least 24 provinces, municipalities and other regions in China have told businesses not to resume work before Feb. 10 at the earliest. Some auto companies are asking employees who can to work from home, while others continue to extend the holiday shutdown for operations across the country.

Here's how Big Tech companies are combating coronavirus misinformation
Here's how Big Tech companies are combating coronavirus misinformation

Operations impacted

Employees with Ford Motor and Fiat Chrysler who are able to do so are working from home this week, while production at both automakers' plants is scheduled to remain closed until at least next week, the companies confirmed to CNBC.

Nissan Motor on Tuesday said its operations with Wuhan-based automaker Dongfeng Motor, one of the largest and most diversified joint venture automakers in China, could restart as early as next week.

"In full compliance with government directives and in view of the situation of the epidemic and our suppliers, we are considering to restart production in China after Feb. 10, with operations in Hubei Province including Wuhan to resume after Feb. 14. We will update as necessary," the company said in an emailed statement.

Other automakers such as Honda Motor and French carmaker Renault have extended plant shutdowns in Wuhan, the epicenter of the outbreak, until Feb. 13, in accordance with the Chinese government's guidance, according to Reuters.

General Motors, the largest U.S. automaker in China, last week told employees there that it will keep its Chinese factories shut down through Feb. 9. A company spokesman on Tuesday confirmed those plans remain.

South Korean automakers Hyundai Motor and SsangYong Motor also have suspended operations at some locations in their home country due to supply disruption, according to Reuters.

Tesla CFO Zach Kirkhorn last week confirmed the company was in the "early stages" of understanding whether and to what extent its new Shanghai plant may be impacted by the coronavirus. The automaker, he said, is expecting a one to one-and-a-half-week delay in the ramp of its Model 3 sedan due to the government-required factory shutdown.

'Unprecedented' outbreak

Michael Dunne, CEO of ZoZoGo, which advises automakers doing business in China, described the coronavirus as "unprecedented in so many ways."

Dunne said the last time China had any issue close to this was the SARS outbreak; however, that was nearly 20 years ago and the country didn't have the global impact it does today on industries such as automotive.

China's auto factories produced 1.1 million passenger vehicles in 2002 when the SARS epidemic erupted, killing 349 people in China from 2002 to 2003, according to International Organization of Motor Vehicle Manufacturers. That compares with roughly 23.5 million vehicles produced today, according to the group.

Uncertainty around car industry in China persists: Analyst
Uncertainty around car industry in China persists: Analyst

"That's 2 million [vehicles] a month; 500,000 a week. So, you miss a couple weeks and that's a million units, boom, right there," Dunne said. "That's pretty stunning when you start to take the scale down instead of up."

Dunne said people in China tell him the streets and public transit systems that would normally be packed during rush hour are nearly empty. He said, "They're feeling it nationwide."

Resuming operations

Britain-based auto supplier Aptiv has a team devoted to monitoring and handling the coronavirus, including employee safety and travel as well as its global supply chain, according to CEO Kevin Clark.

"We have a focus team that's really spending 24/7 on that," he told CNBC during a phone interview last week following the company reporting a fourth-quarter earnings beat.

Aptiv employs 25,000 people at 18 manufacturing plants and three technical centers in the country. The company, which supplies automotive systems and parts, said it will abide by the government's recommendations on resuming operations.

Clark said the company is preparing to provide "necessary safeguards" for when business operations reopen. That includes deploying protective masks and gloves and medical devices to detect symptoms of the virus, according to a company spokeswoman.