The Shanghai factories of Tesla and SAIC started producing again on Tuesday following weeks of lockdown due to a wave of omicron infections that have put the country’s auto production in a deep freeze. However, further halts loom large, as many other auto parts makers struggle with getting government permits to restart operations.
Why it matters: China’s auto industry is still far from getting back to total production. This week’s resumption is limited, and the wider industry faces various challenges, such as supply chain shortages and a limited workforce.
- Shanghai and its neighboring regions are a key hub for China’s auto industry.
Short-staffing: Although Tesla and Volkswagen partner SAIC got their employees back to work earlier this week, smaller auto parts makers on the government’s whitelist for business resumption are facing challenges in putting their workers on assembly lines.
- “We basically failed to call back our employees today even though we had government permission for resuming production,” Ye Chunlei, a director of Daimay Automotive Interior, a supplier to auto majors such as Tesla and Volkswagen, told Chinese media 36Kr on Thursday.
- Ye estimated that only 40% of the company’s employees were eligible to return to the factory, adding that the resumption order had not been communicated to lower-level government departments, such as the local neighborhood committees responsible for managing the lockdown in the apartment complexes across Shanghai.
- Tesla only has enough inventory of spare parts and materials for about one week of production, sources told Chinese media Caixin on Thursday. The US EV giant said on Wednesday in its earnings report that “limited production has recently restarted,” and the company continues to “monitor the situation closely” without revealing further details.
Logistics disruption: Despite easing restrictions from Shanghai authorities, automakers are having trouble getting parts and materials as new lockdowns across the country continue to hit the auto supply chain.
- Freight carriers around Shanghai are finding it challenging to secure vehicle passes that allow them to deliver goods to China’s largest metropolis. Further complicating matters, the requirements for vehicle passes vary among different regions, Chinese media Caixin reported on April 15, citing a local carrier from the eastern city of Wuxi.
- Truck drivers are also required to submit multiple documents to prove that they are Covid-free, including negative tests from within the previous 48 hours and health codes that show they have not been in any known high-risk environment.
- The volume of highway traffic in Shanghai and the nearby provinces of Jiangsu, Zhejiang, and Anhui plunged by 65% on April 18 compared with a year ago, according to numbers released by the Ministry of Transport. The volume of highway traffic nationally in China is also down by 40%, according to the same statistics.
New rules to resume production: Shanghai released a new guideline on April 16 to help companies prepare for resuming production.
- More than 250 auto firms in Shanghai are now mandated to implement strict health and safety rules at their plants to qualify for resuming production, including running in a “closed-loop” production system where workers live on-site.
- Other measures include daily testing of employees, restrictions on group dining, and limiting movement, according to guidelines (in Chinese).
- The rules state that workers should wear face masks at all times, except when eating or drinking, and that all visitors are required to take an antigen test on-site and have proof of a negative covid test result within 48 hours before their arrival.