Car manufacturers have been confronted for a little over two years now with a headache that they are no longer sure if they will be able to manage 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.
This headache is the disruption of supply chains. Specifically, 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 needed to assemble their cars.
For consumers, this has resulted in soaring prices for both new and used cars. Delivery times for new vehicles have also been considerably extended.
The temporary suspension of production in markets as important as China and the United States, the world’s two largest automotive markets, has also significantly affected the revenues of car manufacturers.
New Lockdown in Shanghai, Home of Car Factories
The reopening of the economies at the start of the year has breathed 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 said on Sunday it will lock down Shanghai, its largest city, in two stages to conduct Covid-19 testing over nine days. Shanghai authorities said they would divide Shanghai in two for the testing, using the Huangpu River that passes through the city as a boundary.
Shanghai is at the center of a new surge in Covid-19 cases in China, with 3,500 new cases reported in the city on Sunday.
This decision has led some car manufacturers to close their local factories again. This is the case of the electric vehicle manufacturer Tesla (TSLA) – Get Tesla Inc Report. The company had notified its workers and suppliers of its shutdown at 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, with 33,315 targeted for export. The factory is being ramped up to eventually produce 1 million EVs 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 stocks 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 General Motors Company Report has 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 which is likely to be copied by other companies in areas where there are lockdowns.
Employees working in factories owned by the GM-SAIC joint venture have been asked to sleep on site, a source familiar with the matter told TheStreet who requested anonymity.
Employees Isolated from The Rest of The World
GM has also requested 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 the workers stay in the plant all the time. Employees live, work and sleep in isolation from the rest of the world and especially from their families to prevent the spread of the virus.
Production in the SGM plant in Shanghai continues with the appropriate health measures in place (closed-loop requirement), the source added.
According to the Shanghai government’s pandemic control measures, companies are required to operate either in closed-loop if necessary or have the employees work from home.
Similar measures had been put in place during the Olympic Games in Beijing in February, in particular concerning the people working on this planetary 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 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 lockdown is supposed to start on April 1.