What COVID-19 means for the car industry in China

More than 80 percent of the world’s auto supply chain is connected to China.⁽¹⁾ In January 2020 China’s car sales plunged by 18 percent.⁽²⁾ The China Passenger Car Association (CPCA) considers that the first two-month sales could decline by 40 percent or more compared to the same period in 2019. Production shortfalls resulting from supply chain disruptions in China will impact global automakers. 

Hubei is one of the four major automobile production bases in China and has more than 100 automotive suppliers. Automotive plants in Hubei remained closed until March 11 and have now slowly started reopening. China is now over two months into the COVID-19 outbreak and vehicle sales have dropped to nearly zero. However, February, due to the Chinese New Year, has never been a strong month. March numbers will be much more representative of the real impact of the Coronavirus.

The situation in China is slowly getting better. According to the China Association of Automotive Manufacturers (CAAM), by the last week of February, more than 90 percent of over 300 automotive parts suppliers outside Hubei had resumed production. While all plants are open again, production rates were still low given the dearth of orders from manufacturers and logistics problems.

While Moody’s Investor Service adjusted its global vehicle sales forecast to be down 2.5 percent in 2020 instead of a previous 0.9 percent drop due to the Covid-19 outbreak, it now looks in general more like a 6-8 percent down this year, with knock-on effects into 2021.

However, people are not very happy to use public transport which makes the interest to buy cars seem huge. This is very much dependent on the restriction period required to contain the global spread of the COVID-19 pandemic and assumes there will be no subsequent second global wave.

^{(1) LMC Automotive Limited, Presentation: 20200312_Coronavirus Impact Assessment_for Amcham_vF.pdf, Page 16, 1 Point.}

^{(2) LMC Automotive Limited, Presentation: 20200312_Coronavirus Impact Assessment_for Amcham_vF.pdf, Page 7, first comment).}