“Gigantic” Impact From China Lockdowns To Hit Auto Industry Globally: Automobility’s Bill Russo – Forbes
Tesla CEO Elon Musk gestures during the Tesla China-made Model 3 Delivery Ceremony in 2020, … [+]
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China this week reported a 47% plunge in auto sales in April from a year earlier as Covid-19 lockdowns wreaked havoc in the world’s largest auto market and a major global manufacturing hub for auto parts and electric vehicles. Amid business uncertainties in the wake of the country’s Covid policies, “one thing remains certain,” China’s state-run Xinhua news agency said yesterday. “China will stick to its dynamic zero-COVID policy.”
So what’s ahead for the global auto industry? I spoke on Tuesday with Bill Russo, the founder and CEO of Automobility, a Shanghai-headquartered strategy and investment advisory firm. The 18-year China business veteran and former head of North East Asia at Chrysler had been on the ground in Shanghai through this year’s lockdowns until last week, when he returned home to the United States.
Industry supply chains will remain constrained for the foreseeable future, fueling inflationary pressure, Russo said in a Zoom interview. Winning brands will need to vertically integrate their businesses into semiconductors and EV batteries, while Tesla will likely overcome current woes in the China market due to its Apple-like following, he predicted. Excerpts follow.
Flannery: How’s the pandemic impacting the industry and the auto market?
Russo: It’s severe — very bad. It’s not just Shanghai. You’ve got the Shanghai corridor – the Yangtze River delta and the world’s largest port there. It’s a supply base for vehicles made throughout China and the world. There’s a knock-on impact from the disruptions that were already there before the lockdowns — the trade issues, then the chip supply issues, then the Ukraine war — that are now compounding problems and sending shock waves through the supply chain. Although the lockdown depresses demand, the biggest impact has been on the supply side, which involves the ability to move parts, get people in factories, manufacture components and assemble vehicles. There are severe constraints now. Adding in all of the new logistical problems on top of that, you’ve got a perfect storm of emanating waves of disruption.
Flannery: China’s April sales numbers this week continued to show year-on-year EV sales growth.
Russo: Demand is not the primary issue. But let’s factor in that March EV sales were 465,000 and April was around 299,000, so the market has taken a sharp drop of 36%. Comparatively, sales of internal combustion engine vehicles were down more than 50%. So overall, the industry is taking a gigantic hit. The secular shift to electrification is still there, but it’s now affected by the inability to get components. And on top of that, you’ve got all these inflationary forces that are driving up prices, which is going to have a knock-on, negative effect on demand as prices go up.
Flannery: Does the impact differ between industry newcomers and older makers?
Russo: NIO shut early and they’re not even in Shanghai – they’re based in Hefei but their R&D and a lot of their supply chain is the Yangtze Delta region. Tesla for weeks couldn’t produce anything. Now (Tesla) has a “closed loop” system, but the problem is getting parts. You can open …….