Efforts and initiatives to prevent the spread of the novel coronavirus—which has killed 1,016 people in China, with confirmed worldwide infections in excess of 42,600—have produced images as dramatic as the headlines they accompany. Footage of desolate streets in vast cities across China, and in Hubei province in particular, come courtesy of government quarantine measures implemented in conjunction with the extended Chinese New Year holiday, originally due to run for ten days from 25 January.
Those operating in the global automotive industry are watching closely the development of the coronavirus, its impact on vehicle production in China and the knock-on effect overseas. The virus originated in Wuhan, the capital city of Hubei province, China’s most important vehicle manufacturing hub and the source of around 9% of China’s vehicle output.
Not only has the virus spread beyond China’s borders, but so has its impact on the automotive industry, and, as with unpredictable natural geological disasters, the fragility of the global automotive supply chain is once again being laid bare. Hyundai and Kia have been forced to halt operations in South Korea due to a shortage of parts from China; Nissan has suspended some production in Japan for the same reason; and FCA has announced that the coronavirus will lead to a halt in certain vehicle assembly operations in Europe.
Success or failure in China can have a significant impact on any of the global automakers operating in that market, but S&P Global noted recently that Volkswagen Group is the automaker most exposed to the impact of coronavirus
Just as the streets are empty, so too are the factories, and the suspension of vehicle manufacturing in China will have a severe impact on first quarter results, to the tune of at least a million units in lost production. With the head of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, warning that “we may only be seeing the tip of the iceberg”, a picture is beginning to emerge of the impact not only on China’s economy, but on the global economy. China accounts for 16% of global GDP, it is a major vehicle producer and is the world’s largest car market. Success or failure in China can have a significant impact on any of the global automakers operating in that market, but S&P Global noted recently that Volkswagen Group is the automaker most exposed to the impact of coronavirus; Nissan, it said, is close behind due to its “high exposure and recently poor performance”, and Honda is a further example of an automaker which is heavily reliant on China for sales and production.
“Images of deserted streets and shopping malls, not just in Wuhan but across China, suggest that purchasing a new car may be far from the minds of most consumers living with the threat of infection by the coronavirus,” notes automotive industry analyst Jonathan Storey, whose analysis fronts a new Automotive World report on the outlook for China’s new vehicle market. “Even if someone wanted to make such a purchase, the extended New Year holiday and the continuing closure of many public spaces and car dealerships have already effectively cut the number of selling days.”
While there is little doubt that the coronavirus outbreak has already had some impact on demand, adds Storey, there is considerable uncertainty about its future impact as the likely duration and severity of the epidemic remains unknown.
The suspension of vehicle manufacturing in China will have a severe impact on first quarter results, to the tune of at least a million units in lost production
“Our central scenario is that the extensive containment actions being put in place by the Chinese authorities and the precautions being taken by individuals will be effective within a reasonably short time and that the epidemic’s direct impact on vehicle demand will mostly be confined to Q1-2020.”
A longer-term impact, Storey continues, will come from the widespread loss of income for many people and the consequent drop in confidence.
“The optimistic scenario is that the impact on vehicle demand is confined to late January and early February and that many of the lost sales are made up later in the year. The pessimistic scenario is, fairly obviously, that the level of demand in 2020 will be significantly lower if the epidemic is not brought under control speedily.” However, Storey suggests, based on the experience of past epidemics, the coronavirus outbreak will exert only a limited drag on demand into 2021.
The two-part Automotive World report, China’s new vehicle market: prospects to 2024 presents a five-year outlook for the Chinese market through to 2024, and industry perspectives on the evolution of mobility over the longer term, tackling a range of topics that includes vehicle electrification, connectivity and the role of 5G, urban and micromobility, and the impact of autonomous driving.