Covid hits China yet again but auto makers may avoid apocalypse this time

Several cities in China have once again come under an absolutely strict lockdown with a new variant of Covid-19 taking grip in the country. It is a moment of deja vu from March two years ago when the pandemic first emerged as a massive threat in the country and, subsequently, the world over. Apart from the numerous and unprecedented challenges for people and industries, the supply-chain issues that emerged then remain till date. But while the ramifications of the first Covid wave in the world are being felt up until now, the latest rise in the number of cases may not be as drastic for automobile manufacturers as it was in 2020.

China has seen more positive cases so far this year than it had reported in all of 2021. Cities like Shanghai, Changchun and Shenzen, among many others, have been placed under lockdown. This has once again led to a roadblock in production with Toyota and Volkswagen - both have separate joint ventures with China's FAW Group - announcing a pause in manufacturing. Both companies have their manufacturing facilities located in Changchun.

While China is indeed the manufacturing hub for electronics and automobiles, among others - it is the world's largest automobile-manufacturing country, the current situation may not be as apocalyptic as it was in 2020.

Lessons Learnt

The Covid-19 pandemic in 2020 came as an unprecedented challenge with supply chains massively impacted in China and the world over. Vehicle production came to a standstill and this affected sales not just here but across the world. After all, China is also a major hub from where vehicles are sent to foreign markets, especially those in Europe.

But in the past two years, lessons have been learnt. At least most lessons. While there still is a over-riding dependence on manufacturing in China and catering to the local as well as export market, auto brands are increasingly looking at diversifying operations.

Reports also suggest that many local Chinese players in the automobile sector have ramped up production in the past to ensure a buffer stock to cater to demand when manufacturing and supply-chains take a hit. It is true that the global semiconductor shortage may not always allow for a scale up but those who can, have.

Pause in Play

Market watchers are mildly concerned about the rise in Covid-19 cases in China. If it spreads to other parts of the globe, it could bring back a now very familiar sense of worry. But major automotive brands have devised contingency strategies to drive around a problem that has made a habit of making a comeback every few months.

Production pauses are of course a bother, sometimes more than that. But the past has shown a spurt in demand once cases begin to slide and in it lies the sense of optimism that could add wind to the sails of the global and Chinese auto industry.