Many companies in China are being impacted because of the increasing COVID-19 restrictions. Tesla is among those companies that are lobbying for the Chinese government to ease restrictions as COVID-19’s presence continues. Several companies like Tesla and Covestro have been permitted to operate within a closed-loop system. However, it has been a challenge as there are few components that need to be bought from other locations to continue manufacturing.
Tesla has been hit directly by the closed-loop system setup. The company’s Gigafactory Shanghai production facility, which produces the Model 3 and Model Y, has lacked the necessary components to keep production lines going since late March, the report claims because there is a lack of permissions for drivers to travel among regions, an executive with one of the automaker’s components suppliers said. They wished to remain anonymous.
Covestro spokesperson Richard Fu said, “Logistics constraints remain the biggest challenge, and there are uncertainties with regards to especially cross-provincial transport and supply along the value chain, which may force us to further adjust the load of some plants in the days to come. We are closely monitoring the situation, which is changing very fast.”
Restrictions
COVID-19 cases in Shanghai rose by 23,624 on Saturday, with symptomatic infections rising to 1,015 from Friday’s 824 cases, health authorities in the city said. It is the eighth straight day of record-setting cases. Shanghai has been in a citywide lockdown since April 5. “It is technically business as usual for the Shanghai Port,” Bettina Schoen of the European Chamber of Commerce’s Shanghai Chapter said. “However, a logistics black hole is being caused by restrictions on truck drivers going around to surrounding provinces for cargo pickup.”
Nio forecasted deliveries in the first quarter of 25,000 to 26,000 vehicles, but it is not known how much this and other potential shutdowns will affect deliveries in the second quarter. Electric vehicle demand is growing in China with retail penetration rising from 5.9% in January 2021 to 18.6% in December 2021, according to the China Passenger Car Association.
Small businesses have been hit hard, with shops and restaurants being forced to shut down. Tesla, as well as many Chinese and Taiwanese manufacturers, are unclear about when they can restart their factories. Meanwhile, port delays are getting worse, and air freight rates are soaring, putting even more pressure on global trade. “The surging cases in Shanghai convinced top leaders that there is no middle ground between zero-Covid and living with Covid. From now on, snap lockdown could be the prevailing strategy,” said Larry Hu, chief economist for Greater China at Macquarie, in a research report this week.