Karakush

Today, the sun rises as usual.

SAIC Group has started pressure testing for resuming work and production.

Affected by the pandemic, the series of factories located in the country belonging to this giant automobile group ceased production in late March and gradually shut down until April. This has once again made people aware that automobile manufacturing is not an isolated industry. The time that can be barely maintained under closures does not exceed one month.

The risks come from personnel, supply chain, logistics, closed production management and epidemic prevention measures, which are also the key points of this round of pressure testing.

Based on the test results and the trend of the epidemic, SAIC Passenger Vehicle, SAIC-GM, and SAIC Volkswagen in Anting will dynamically plan the resumption time. Together with Tesla, they are among the first 666 industrial enterprises in Shanghai’s “white list” for resuming work and production.

Automobiles are the focus of the “white list,” accounting for nearly 40% of the nearly 250 automobile-related companies on the chain list, including complete vehicles, parts, and logistics. They are among the “priority protection of concentrated resources” targets.

According to statistics, there are more than 1,000 automobile industry chain enterprises in Shanghai that have stopped production or reduced production to varying degrees.

From the perspective of an ordinary person, automobiles may not be the most important thing to focus on right now. Whether or not they are produced, the common people have no capital to pay attention to bulk consumption, nor do they have the position to care about the so-called industry. This is essentially the same as worrying about Zelensky while being nostalgic for the bitter meal.

The only somewhat related part is that, as Shanghai’s pillar industry, automobiles can be regarded as a dynamic indicator to answer some questions that are closely related to ordinary people: First, how much has been delayed this year? Second, when can we catch up? Third, what can we do?

Do Not Ask For Whom The Bell Tolls

In terms of production and sales data, March demonstrated resilience rather than difficulty. The performance of the two domestic companies is generally better than one might expect:

For SAIC Group: SAIC Volkswagen produced 108,500 units, a year-on-year decrease of 1.36%, and sold 110,000 units, a year-on-year decrease of 2.22%. SAIC-GM produced 88,700 units, a year-on-year decrease of 31.30%, and sold 88,500 units, a year-on-year decrease of 31.40%. SAIC Passenger Vehicle produced 61,700 units, a year-on-year increase of 4.40%, and sold 62,200 units, a year-on-year increase of 7.25%.

As for Tesla, it produced 55,500 vehicles and sold 65,800 vehicles, a year-on-year increase of 86%.

In April, the fear dominated by the epidemic will be fully demonstrated.One is the solid shutdown days. In March, Tesla didn’t stop production until March 28th, and SAIC Volkswagen didn’t close some factories until March 31st. SAIC-GM and SAIC Motor Passenger Vehicle ensured their operation through closed management measures.

In April, according to the analysis of China Passenger Car Association (CPCA), the automobile-related output in Shanghai accounted for about 20% of the national output. Moreover, the production in Shanghai was in a relatively compact full production state before, so the loss of this part is almost determined.

The other reason is the uncertainty rebound in the supply chain. If the epidemic did not intervene, March was actually a good start. The chip supply gradually improved, manufacturer inventory increased, delivery cycles shortened, and new cars were launched after the Spring Festival. Although the overall production and sales of the automobile market fell short of expectations, they remained stable. Production year-on-year decreased by 0.3%, and wholesale sales decreased by 1.6%.

However, as the epidemic in Shanghai continued to lengthen, more and more local and surrounding supply chain enterprises had to stop production, bringing a crisis to more auto companies. For example, the issue of chips—the Yangtze River Delta region accounts for half of the national chip production, of which Jiangsu accounts for 33% and Shanghai accounts for 10%.

The sense of urgency is given by He XPeng and Yu Chengdong. He XPeng’s factory is in Zhaoqing, Guangdong, and Huawei’s factory is in Chongqing. They both stated on their WeChat moments that the supply chain is about to collapse.

However, NIO, which is located deep in the Yangtze River Delta Industrial Belt, was suspended directly on April 9th.

Can resumption of work and production change this situation quickly?

It’s difficult. The difficulty lies in logistics.

Currently, cross-regional transportation in the Yangtze River Delta region is a disaster. According to a logistics industry association seminar material reported by 21st Century Business Herald, since April, the closure ratio of major “one city, two provinces” toll stations and service areas in the Yangtze River Delta was between 14% and 31%, and 30% to 48%, respectively, and the traffic volume decreased by 40% to 80%.

The actual situation is even worse. Especially in Shanghai, many places in the Yangtze River Delta directly persuade or even isolate vehicles coming from Shanghai. On the one hand, cross-regional logistics can indeed bring risks of epidemic transmission. On the other hand, the increasingly stringent anti-epidemic measures have seriously affected the originally thriving integration of the Yangtze River Delta.

The direct result is transportation obstruction, where raw materials are unable to be transported in and finished products are unable to be transported out. Even if the blockade is successfully broken, it often takes a long time and incurs high costs.

For example, if the toll station does not release the transportation vehicle, what can downstream enterprises do? They can only call for forklifts to unload and transport, which dramatically increases transportation costs. According to an interview conducted by the First Financial Daily regarding a multinational automobile supply chain enterprise in Anting, the current actual paid transportation price is 10-15 times the original contract price, or even more than 20 times in some places, and it continues to rise every day.Assuming the driver is willing. Industrial and vegetable transportation also suffer from a shortage of transportation capacity. Even if companies pay more, drivers do not want to waste too much time on a single order. Even with a pass, cross-regional transportation seems to be inevitably obstructed.

Even though there are efforts being made, such as introducing the “Automobile Industry Chain Supply Chain Coordination Platform,” the fact that it is difficult to demand and execute a standard immediately in multilateral relationships is illustrated by the difficult situation of entering and leaving Shanghai. Shanghai is just Shanghai in the Yangtze River Delta, not upside down, and it cannot be clearer.

Commercial responses are faster, such as reshaping logistics paths with the “Land-Sea Intermodal Transportation” and “Land-Sea Intermodal Transportation via Rail.” The logistics of the Yangtze River Delta can first arrive at Taicang Port in Jiangsu Province, then go to Shanghai Yangshan Port and transfer to land transportation to avoid roadblocks.

This is similar to a joke during the time of the Shanghai Swan and Duck Closures: How does a Shanghai person go from Puxi to Pudong? You can first go to Hongqiao Airport, buy an 80 yuan special price ticket to fly to Baiyun, and then fly to Pudong from Baiyun. This is land-air intermodal transportation, and the joke is life.

Of course, taking detours is taking detours, but it is still better than staying put. The former loses a little bit, while the latter has to bear the pressure of having goods in hand and high cash flow.

There is no Spring that cannot be crossed

In the long run, freight is only a temporary problem under severe epidemics.

Looking back two years ago, Wuhan, a major automobile industry town with a total output value of 400 billion yuan, was taken as an omen. In early 2020, Wuhan was sealed off for more than two months, and the most tragic February saw only 11 cars sold in the whole city. Since March, some factories have started to resume work and production, and by April, some companies achieved full-load production, basically recovering production in the second quarter.

Can Shanghai replicate the same V-shaped posture? Perhaps there are some differences. Uncertainty comes from two aspects:

The first is the supply chain. The overall supply chain in 2022 is far less stable than two years ago. At that time, chips and batteries were not yet long-term complex problems, which directly affects the production and cost of new energy vehicles. And in 2020, Wuhan was not as dependent on new energy vehicles as Shanghai in 2022.

If automobiles are the pillar of Shanghai, new energy vehicles are the driving force for high growth rates in Shanghai. Last year, the year-on-year growth rate of new energy vehicle output value in Shanghai was 1.9 times, and the two-year average growth rate reached 1.8 times—far higher than the output value growth rate of the automotive manufacturing industry of 21.1% and the two-year average growth rate of 15.0%. The year-on-year growth rate of the city’s industrial added value was 10.3%, with a two-year average growth rate of 6.0%.

The second is consumer demand, whether they still have an interest in and purchasing power for automobiles.## Wuhan was providing government subsidies to promote sales. From May to the end of 2020, for each passenger car produced by an enterprise in Wuhan, sold and licensed in Wuhan, the Wuhan government offered a subsidy of 3% for fuel vehicles, capped at 5,000 yuan; and 10,000 yuan subsidy for new energy vehicles.

The impact on Shanghai perhaps needs to be evaluated in the macro economy. One scholar pointed out that the impact of such a mega city’s two-week lockdown on the national GDP in that month is roughly 2 percentage points (based on last year’s data calculation, which is about 190 billion yuan), of which about 7% comes from indirect economic losses to other cities.

According to a survey of 14 institutions by Caixin, economists’ average forecast for Q1 GDP growth rate was 4.5% year-on-year, lower than the annual target of about 5.5%, with a forecast range of 3.8% to 5.0%.

Based on past experience, a tight budget may only cause a partial impact on car consumption, with plans to purchase low- and medium-end products often being delayed, while high-end products continue to maintain ruthless growth.

At the same time, the possibility of another type of asset allocation is also worth noting. Many institutions believe that this year’s pilot project for real estate tax may not be launched in order to relieve the long-term downward pressure on real estate. In fact, many places such as Suzhou and Nanjing have introduced loose new policies for real estate. If this move attracts a rebound in the housing market, usually there won’t be extra money in the pockets to buy a car.

Hopefully the weak can also move forward

After this battle, the industry’s judgement is always that the strong will become stronger, the weak may be finished immediately after the unblocking, with heavy financial pressure, weak supply chain relationships, poor sales, and rapid staff turnover. Sometimes it is a luxury to just seek the reasonable or do their job properly.

It seems that everything in this world is getting more difficult. If you are not strong, then just doing what you should or what is expected is luxury.

We hope that every enterprise has a strong system, stable cash flow, high gross profit margin, and a large share of sales. There is nothing wrong with this. However, in the end, it seems that society is such that there is nothing to completely avoid risks.

Perhaps what is worth more anticipation is that a stronger society can ensure justice and security for every enterprise and even every individual in the face of any disaster and risk. If it is strong, let it recognize that responsibility is also under the light of authority, and even if it is weak, it can be given the courage and strength to move forward again.

Let the hope be endless to the one who is self-reliant, this kind of strength may be more efficient.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.