Automobile manufacturers have been dealing with a headache for a little more than two years, and they are no longer sure if they will be able to manage and master it anytime soon.
The Covid-19 pandemic caused this problem, which is becoming increasingly difficult to solve, and the Russian invasion of Ukraine has only exacerbated it.
The disruption of supply chains is the source of this problem. Specifically, governments’ restrictive measures, particularly in Asia and Central Europe, where many raw materials required for vehicle production are extracted. Because of the lack of elements and parts needed to assemble cars, car manufacturers have been forced to temporarily close their factories. For consumers, this has resulted in soaring prices for both new and used cars. New vehicle delivery times have also been significantly extended.
The temporary halt of production in key markets such as China and the United States, the world’s two largest automotive markets, has had a significant impact on automakers’ revenues.
The reopening of the economies at the start of the year has given rise to a new wave of optimism. However, it appears that this optimism was short-lived. On the one hand, raw material prices such as nickel, aluminum, and palladium have reached new highs. The pandemic, on the other hand, appears to be resuming in Asia, specifically in China, where many automakers have factories either on their own or in joint ventures with local firms.
China announced on Sunday that it will shut down Shanghai in two stages over the next nine days to conduct Covid-19 testing. Shanghai authorities said the Huangpu River, which runs through the city, would be used as a dividing line for the testing.
With 3,500 new cases reported in Shanghai on Sunday, the city is at the epicenter of a new surge in Covid-19 cases in China.
As a result of this decision, some automakers have decided to reopen their local plants. This is the case with Tesla, an electric vehicle manufacturer. The company had informed its employees and suppliers that the world’s largest electric vehicle factory in Shanghai would be shut down. In February, Tesla’s Shanghai factory, which opened in January 2020, produced 56,515 electric vehicles, with 33,315 of those destined for export. The factory is being expanded to produce 1 million electric vehicles per year.
As a result, customers who expected to receive their vehicle soon will still have to wait. Furthermore, it reduces available vehicle stocks, which is likely to result in a supply-demand imbalance, resulting in a price increase.
GM, unlike its competitors, has decided to keep its Chinese factories open. As a result, production will continue. To do so, the team led by Mary Barra devised an ingenious method that is likely to be replicated by other companies in areas where lockdowns are common.
Employees at the GM-SAIC joint venture’s factories have been asked to sleep on the job, according to a source familiar with the situation who requested anonymity.
GM has also requested special permits for its trucks in order to continue delivering vehicles. According to the source, these measures are known as “closed-loop” management.
Closed-loop operation refers to all workers remaining in the plant at all times. To prevent the virus from spreading, employees live, work, and sleep in isolation from the rest of the world, particularly their families.
The source added that production at the SGM plant in Shanghai is continuing with the necessary health precautions in place (closed-loop requirement). Companies must operate in closed-loop if necessary or have employees work from home, according to the Shanghai government’s pandemic control measures.
Similar safeguards were put in place during the February Olympic Games in Beijing, particularly for those working on the global sporting event.
In a joint venture with Chinese state-owned automaker SAIC, the company produces Buick, Chevrolet, and Cadillac vehicles east of the Huangpu River in Shanghai.
Volkswagen assures that its operations in China are unaffected, but the German group’s production facility is located in the city’s western outskirts, where the lockdown is set to begin on April 1.