Automotive > Powertrain, Body, Chassis & Safety Blog

Coronavirus Disruption to Automotive

by Kevin Mak | Mar 23, 2020

Originally published on March 5th, 2020

The coronavirus or COVID-19 is causing a number of issues that will adversely affect the automotive sector:

  • Loss of vehicle sales in China
  • Loss of vehicle production in China and now elsewhere, especially in Europe
  • Loss of vehicle exports to China
  • Loss of supplies from production facilities in China being exported to vehicle assembly plants outside of China and the loss of vehicle production outside of China
  • Infection of staff traveling back from facilities in China disrupting operations in facilities outside of China

Smaller effects include:

  • Loss of vehicle exports from China (General Motors, just 3 percent of output volume)

UPDATE (March 24th, 2020): Ethan Harris, Head of Global Economic Research at the Bank of America, said the disruption to automotive may last into May or possibly longer, adding, “In terms of the impact on global production, the shutdown outside of China will likely become bigger than the impact from China.”
The guidance on the global loss of vehicle sales, production and electronic system demand has increased further than the 4.0M unit, $3.7B and -4.4 percent estimate earlier in March - Strategy Analytics estimates a 6.2 percent decline in 2020 against its forecast in January 2020, resulting in a $18.9B drop in automotive electronic system demand and a $2.5B drop in automotive semiconductor demand, with vehicle production possibly falling by 5.6M units.

Loss of vehicle sales

Reuters has reported a loss of retail vehicles sales in China by 92 percent in February 2020.  Based on the China Passenger Car Association (CPCA) statistics, only 4,909 units were sold in the first 16 days of February 2020 against 59,930 units sold in the same period in 2019.

  • However, the retail sales figure is much lower than the overall vehicles sales figure reported by the China Association of Automobile Manufacturers (CAAM), which were 1,482,000 units in February 2019. 
  • CAAM has not yet published overall sales figures for February 2020, but it has estimated the impact to sales could be as much as 10 percent lower volumes in the period January-to-June 2020 and 5 percent lower volumes in the whole of 2020.  This is an equivalent of a reduction of 1.29M units of sales (against the annual total of 25.769M units recorded for 2019), with the majority belonging to vehicles assembled in China.
  • UPDATE (March 18th, 2020): LMC Automotive has recorded a loss of vehicles sales in China by 80.4% in February 2020 (equivalent of 1.2M units).  Similar volumes have been estimated for loss of vehicle sales each in Europe and North America, with JD Power estimating a 41 percent decline in US sales in March 2020 (over the same month in 2019) and that 2020 sales would hit between 14M and 16M, down by around 1.8M units (down 11 percent against 16.8M sales recorded for 2019). 
  • US dealers are attempting to alleviate the impact by moving more sales effort online and deliver vehicles directly to the homes of purchasers and to move as much of the transaction remotely, such as pick-up/drop-off servicing.
  • UPDATE (March 23rd, 2020): The University of St. Gallen, Switzerland, has estimated that 2020 car sales in Western Europe will have decreased by 19 percent because of the virus (equivalent to a 9 percent decline globally).  Professor Ferdinand Dudenhoeffer said that the recovery back to 2019 levels will not appear until 2030.  Auto makers Daimler, Jaguar-Land Rover and Renault are financially the weakest and the most exposed, according to credit ratings agencies.  OECD secretary general Angel Curria has also said that the effect of the virus on the global economy has been worse than the 2008 financial crisis and warning of U-shaped long period of recession before any sign of a recovery.  The lockdowns and social distancing has effectively meant the loss of many jobs in the hospitality sector, which employed 11.9M people in Europe (in 2016, according to Eurostat) and 16.9M people in the US (US Bureau of Labor, December 2019), as well as a large section in retail.  However, LMC Automotive cautioned, saying it would depend on how long the plant shutdowns will occur and it they last longer than the two weeks currently planned. 
  • Moody’s is reported to have estimated vehicle sales to fall by 2.9 percent for 2020.  This is an equivalent of just 747,000 units (against the annual total of 25.769M units recorded by CAAM for 2019).
  • Among the loss of vehicle sales would likely to include a small volume of high value models imported from outside China, mainly of European premium brands.
  • While it may be assumed that lost sales in early months could be balanced by higher sales in later months, this may not occur fully as the crisis may also cause permanent job losses and a declining economy. 
  • UPDATE (March 24th, 2020): Hubei province, China, has ended its lockdown and car sales have now returned, 61 days later.

 

Loss of vehicle production

LMC Automotive has given its “reasonable assumption” of a loss of light vehicle production to be at between 3M and 4M units from a global total production of nearly 90M units, representing a drop of between 3.3 and 4.4 percent. 

Another LMC assumption is of a drop in vehicle production in China of between 3 and 5 percent, an equivalent of between 731,000 and 1.22M units in China (against 2019 vehicle production of 24.367M units). However, this assumption comes with the proviso that disruption extends into the second quarter of 2020 (April-June). 

From the above assumptions from LMC, the 3M-4M loss in global production could be at the higher scale, representing a “worst case scenario” or that the 1.22M volume loss in China could be repeated in vehicle production outside of China, caused by disrupted supplies from China.

  • With the lockdown imposed in the last week of January, vehicle production was halted across China and remained so into February.
  • Vehicle assembly plants in China were due to restart production by the last week in February 2020, but in some instances, they have been delayed.  Nissan and Honda had announced that they will restart in the middle of March instead, since these auto makers have production facilities in Hubei province, at the epicenter of the contagion.  Other auto makers in Hebei include Dongfeng (which is headquartered there), GAC, joint ventures with PSA and Renault.  UPDATE (March 23rd, 2020): Tesla in Shanghai, China has started production because it has complied with government requirements in supplying workers with masks and sanitizing fluid. 
  • Even with the restart, vehicle production in China is being disrupted by the lack of supplies from other facilities in China.  Also, vehicle sales have been disrupted as consumers are barred or are wary in visiting dealer showrooms.  However, online car sales are continuing. 
  • Vehicle assembly plants outside of China have closed because of the lack of supply from China or are “only weeks” away (since early February) from running out, e.g. FIAT in Kragujevac, Serbia; Jaguar-Land Rover in the UK; and General Motors (stocked until the end of March 2020).
  • Hyundai in Ulsan, South Korea was among the first assembly plants outside of China to close for lack of supplies.  Korea has seen significant disruption given that there is a significant cluster of infected people located around the city of Daegu, which has forced other Korean assembly plants to close, as well.
  • Other worst affected regions of the world for coronavirus include Iran and Italy, where the molded plastic supplier, MTA, has a facility located in Codogno, which is under lockdown.
  • Among the worst affected by Chinese supplies, they include Tier 1 vendors Bosch (steering), F-Tech (pedals, transferring production to the Philippines), Showa (steering for Honda) and Webasto (sunroofs), the latter having infected staff forcing the temporary closure of its Stockdorf, Germany headquarters.  Other domains worst affected include suppliers of infotainment systems and components.
  • Infected staff have been found at BMW in Munich, where 150 colleagues have gone into self-isolation and the affected premises deep-cleaned; and Ford, which has banned business travel.
  • UPDATE (March 18th, 2020): Most, if not all, vehicle production facilities in Europe are to close for two weeks for staff welfare and limit the spread of the virus, as well as from the lack of supplies and vehicle sales (lack of orders from auto makers).  This has been followed in the US as the UAW and the Detroit 3 auto makers have agreed to close plants for two weeks.  Other auto makers quickly followed suit when discovering workers had tested positive for the virus, with a knock-on effect closing parts assembly, such as at Bosch, Continental, Marelli and Nexteer (or moved to temporary working, like at IEE), and some semiconductor facilities, such as at Melexis.  The closing of the borders between European countries has made it difficult to send parts across the continent to vehicle assembly plants, which can only store 1-2 months' inventory because of Just In Time. Kia in West Point GA also had to close because of a lack of parts. 
  • UPDATE (March 23rd, 2020): Only the BMW plant in Spartanburg SC remains open, but will close on April 3rd.  However, some staff are volunteering to stay at parts assembly divisions at Ford and GM.  25 percent of staff at Tesla's Fremont facility remain to ensure delivery of vehicles to customers (as it does not have a dealer network).  Two further assembly plants in Malaysia are also under shutdowns.
  • UPDATE (March 24th, 2020): Vehicle production in Japan is to be suspended for approximately two weeks, including all Toyota plants and by Mazda (for 13 days starting on March 28th). 
  • Other plants in Asia will also see temporary shutdowns, including Mazda in Thailand (for 10 days starting on March 30th), Hyundai in India, as well as Ford in India, Thailand and Vietnam. 
  • Mexico will also see temporary shutdowns, including Volkswagen and Mazda (for 10 days starting March 25th).
  • Ford is also suspending production in South Africa and South America, while Volkswagen is suspending production in Russia due to a parts shortage.
  • Panasonic has announced the scaling back this week and, from next week, an eventual two week suspension of the Tesla Gigafactory 1 facility in Nevada.  
  • LMC Automotive estimated that vehicle production in the US may have decreased by at least 30 percent in March 2020 (against March 2019).
  • China is also a major processor of lithium metal (that turns it into lithium carbonate and lithium hydroxide before going into battery cells for electric vehicles).  Albemarle, Livent and SQM are investing in raising production outside of China (in Australia, Argentina and Chile), but the new facilities won’t be operational until 2021-2022.
  • With the falls in the stock market and the growing lack of investment from the virus, start-ups in autonomous and electric vehicle technology will become increasingly vulnerable, with Starsky Robotics recently filing for bankruptcy.

 

Loss of Automotive Electronic System Demand

From the January 2020 edition of the Strategy Analytics Automotive System Demand Forecast, demand for electronic systems in China is estimated to be at $73.9B for 2020.

  • With LMC Automotive assuming an adverse effect of between 3 and 5 percent in light vehicle production in China, assuming the same percentage decrease in system demand (although the effects to which auto sector and model segments are not known), then this is an equivalent of a loss of between $2.2B and $3.7B.
  • Following the Fukushima nuclear disaster in 2011, there have been attempts to broaden the supply chain to include a second preferred supplier on more commoditized components and on a more regional (Asia, Europe and North America) level. 
  • However, cost pressures, worsened by the need to invest in CASE technologies and by the general decline in vehicle sales, will prevent a complete divestment of supply away from a significant market region like China.
  • Ride-sharing services are suspending vehicle pooling offerings to limit the spread of the virus.  Business for ride-sharing and taxi cabs have decreased significantly as social distancing and lockdowns come into force in many cities.  Uber reported a 50 percent reduction in rides in US cities worst affected by the virus.
  • For business opportunities, Chinese auto makers have launched new models with N95-compliant air filtration for HVAC systems, as already implemented by Tesla and Volvo on their models.
  • Deliveries have also been made by autonomous vehicles in China, for example using Neolix vehicles, where quarantines have caused driver shortages.
  • Auto makers are also looking to assemble face masks and ventilators to support health workers and hospitals during the pandemic. 

 

Coronavirus Automotive Scenario Planner

Strategy Analytics has published a spreadsheet scenario planner, which was updated on March 24th.  Two default scenarios are saved in the planner that can be re-called. 

  • The first is the standard scenario, as published in the January 2020 Automotive System Demand Forecast.This was prepared before the severity of the virus outbreak was known.
  • The second scenario has been developed by Strategy Analytics to present one view of how coronavirus may impact global light vehicle production and the consequent Automotive System Demand.
  • Users can also create and save their own scenarios by entering their estimates for light vehicle production growth in each region in 2020 and 2021.

The spreadsheet scenario planner can be downloaded at:

https://www.strategyanalytics.com/access-services/automotive/powertrain-body-chassis-and-safety/market-data/report-detail/coronavirus-automotive-scenario-planner---update2

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