China’s Covid policies once again upending car production

Volkswagen says a component shortage is the main reason behind a decision to halt production at a joint-venture plant that it has with China Faw Group Co in Chengdu and two of five production lines at its factory in Changchun. – Reuters

BEIJING: Carmakers are opting to shutter their plants in China as Covid restrictions make it almost impossible to secure some components, deeming even the closed-loop systems promoted by officials as a way to maintain manufacturing during lockdowns untenable.

Volkswagen AG (VW) on Monday said a component shortage was the main reason behind a decision to halt production at a joint-venture plant that it has with China Faw Group Co in Chengdu and two of five production lines at its factory in Changchun.

The German automaker doesn’t have an estimate for when output will resume and has no plans to create closed loops, a spokesperson said.

The unpredictability of China’s restrictions, especially as outbreaks reach record levels, means automakers such as VW are currently confronted with significant supply-chain uncertainties, people familiar with the situation said, asking not to be identified because they’re not authorised to speak publicly.

Without a stable and steady supply of components, it’s difficult to make any production plans, let alone move to closed-loop systems that would keep plants running, the people said. Chinese electric-car company Xpeng Inc faces a similar challenge, according to a person familiar with its situation. Li Auto Inc has delayed the delivery of two models because of component shortages, the Beijing-based carmaker said in a statement Monday.

Representatives for VW and Xpeng didn’t immediately respond to requests for comment.

First used during the Beijing Winter Olympics as a way of keeping athletes and support staff separate from the wider population, closed loops were meant to be the panacea that would keep China’s economy chugging even as Covid restrictions limited movement. While they were effective in helping companies like Tesla Inc restart output during the Shanghai lockdown in the spring, the systems have become less tenable the longer the pandemic endures, with workers separated from their families and the outside world long term.

Indeed, Tesla only achieved its closed loop earlier this year because local officials helped coordinate with more than 100 suppliers, according to a person familiar with the situation.

Provincial governments can vary in their power and heft, and Shanghai has been a consistent Tesla backer.

Conditions under a closed loop at the Chinese factory complex of Apple Inc’s main global production partner recently seeded unrest that saw a mass exodus of employees and a violent clash with security guards.

The situation at the factory – known as iPhone City for its massive scale – has laid bare how closed loops are long term, further testing China’s already frayed zero-Covid strategy.

Mounting dissatisfaction among Foxconn Technology Group’s ranks now threatens to further disrupt production at the Zhengzhou plant that cranks out the majority of Apple’s iPhones for shipment around the world.

More broadly, public anger over China’s zero-tolerance approach to Covid is rising, with extraordinary street protests over the weekend. That may make companies even less willing to keep employees effectively locked up in factories for extended periods.

Honda Motor Co also suspended its operations in Wuhan, the original virus epicentre, because of limitations around movement introduced in the area. Whether the plant will remain closed through today hasn’t been decided, a spokesperson said yesterday. — Bloomberg

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China , carmakers , production , supplychain , covid , Volkswagen , Xpeng ,


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