As the virus spreads panic, the reality of global supply chain disruption is creating risk on an unprecedented scale. For the automotive industry, it’s a potentially crippling challenge.
Car companies entered 2020 under enormous pressure from regulators, forcing them to evolve towards electric vehicle technology. For many brands, 2019 was a terrible year as the regulatory costs to meet new emissions targets, ate into profits. Projections are that 2020 could be even worse – and coronavirus is now surely guaranteeing that sorry state of affairs.
Vehicle sales in China have virtually collapsed year-on-year, dropping an astonishing 92% for February. For most brands, China is their most important market and the loss of a month’s volume at that scale, will prove impossible to recover throughout the rest of 2020.The loss of revenue and sales, which coronavirus has caused in China is bad enough, but the more significant issue is moving around talented people and critical parts.
You can’t build – without the little bits
Global integration and subsequent supply chain is what makes the automotive industry function. Various regions and hubs specialise in making specific components. It is cheaper to build particular things in particular locations than it is to source, manufacture and assemble everything in one place.
But there has always been an unexplored weakness within this system: viral disruption.
China is not only a massive demand market for new vehicles. It is also the world’s manufacturing hub, providing an array of vital components for the automotive industry. And now that migrant workers are being prevented from travelling, and factories running at idle frequency due to infected employees, the global automotive supply chain is facing potential failure.
Infected workers are wreaking havoc on entire facilities, initiating unprecedented shutdowns; Hyundai is an example of this. South Korea has been a secondary saturation zone for coronavirus infections. This has forced Hyundai to suspend operations at one of its massive domestic facilities responsible for the brand’s popular SUV models.
The recently launched Palisade large SUV has suffered production interruptions at its Korean SUV production plant, triggering costly delays and creating customer frustration.
Hyundai is not the only brand struggling. Many car companies are requesting special dispensation, to force the dispatching of stockpiled parts from factories which have been temporarily shut down due to coronavirus.
You can’t plan without people
Beyond the panic around sourcing parts, and having entire factories become ghost facilities due to infected workers, air travel is the other compounding issue with coronavirus.
Digital communication has made engineers and automotive strategists operationally independent, but the reality is that travel to Asia for technical meetings and product planning remains a reality, with air travel into and out of Asia heavily restricted, all critical technical planning and strategy for the automotive industry have been delayed. And it has happened at a time when the industry is already panicking about its operational future.
The planning around electric vehicles is a huge problem, being directly influenced by coronavirus. Asia remains the most crucial source of batteries and electronic motor systems, two technical components most European and American car companies are desperate to integrate into their product planning and production systems.
Without being able to deploy technical teams to Asia for contact session and planning meetings, all progress on the industry’s transition from petrol/diesel engines to electric, has stalled. Again.