16 mar 20

COVID-19: OEMs more affected than initially assumed

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Carmakers face shortage: not only of parts, but also of workforce and of customers.

Even though the Coronavirus has crippled the Chinese automotive industry, the number of parts that European carmakers source from China is relatively limited and there are other supply options. “It’s mainly battery cells that will become difficult to get by”: That seemed to be a general assumption a few weeks ago. Today, the actual consequences are materialising and proving to be much greater.

First, China is not to be underestimated as a part supplier for the European car industry. Second, even if you have 99.9% of your parts, the 0.1% that is missing makes it impossible to build your cars. And it's not just China that is sputtering. COVID-19 has also affected South-Korea - a large supplier for the Hyundai and Kia factories in Central Europe - and Italy, where FCA sources most of its components and manufacturing materials.

As component factories in the entire European Union are now shutting down, Europe-based OEMs are starting to see shortages, causing their factories to grind to a halt as well. This morning, PSA announced it would be shutting down its European production apparatus until 27 March. This afternoon, Renault followed in its competitor's footsteps, annoucing the closure of 12 of its 18 production facilities in France "until further notice".

The supply chain and logistic hiccoughs are only part of the problem: workers are also requested to stay home to prevent the virus from spreading. Ford said it would be locking down its Valencia plant in Spain for two weeks starting today after three of its employees tested positive for COVID-19. Following Slovakia's declaring a state of emergency due to the coronavirus outbreak, Volkswagen Group is suspending production at a plant in Bratislava that builds VW, Porsche, Audi, Skoda and Seat models. The German OEM's car assembly plant near Lisbon has reduced its daily output by 16% because of a shortage of workers.

Moreover, consumers are just not buying new cars anymore. In China, new vehicle sales dropped by 80% in February and March is heading towards a decline of 50% compared to 2019. With Europe extending its anti-coronavirus measures, new car sales on the Old Continent are also decimating as people avoid going to showrooms and are worried about their income, as the pandemic might cause job losses and temporary unemployment.

That is indeed very bad news for OEMs who already were in dire straits in the face of the 95g/km CO2 target imposed by the EU. 2020 was supposed to become the year of the EV, but if customers aren’t buying new cars – let alone EVs because they are more expensive than ICE powered vehicles, and if there is a shortage of battery cells, causing prices to increase rather than to decrease, they may just move a serious step closer to having to pay a monster fine for missing their individual CO2 objective.

Facing huge economic costs, governments could also decide to roll back EV subvention schemes, although nothing has been decided or communicated. If anything, OEMs are expected to lobby for a relaxation of the rules. In short, Corona could carry the blame for missing our (virtual) climate goals – even though it effectively limits the number of kilometres driven and hence air pollution today.

Image: Fiat factory in Italy (copyright: Shutterstock)

Authored by: Dieter Quartier