Covid-19 and auto industry

We are already over a week into the nationwide lockdown. The SARS-CoV-2 a.k.a Coronavirus (Covid-19) that emerged in Wuhan, Hubei province of China has spread rapidly across the globe. Crisis and casualties aside, the virus has slowed the world economy to a crawl, and one sector that has taken a severe hit is automobiles. Supply chains have been disrupted and manufacturing operations hampered. The most vulnerable auto companies are those that rely heavily or solely on factories in China for parts and materials. Which coincidentally are most of the companies.

The global automotive industry imports more than $34 billion in motor parts from China annually. Automakers—from General Motors and Fiat Chrysler, to Toyota Motor and Tesla—have been scrambling for weeks, if not months, to secure parts for their manufacturing operations in North America and elsewhere following disruptions from Chinese suppliers. While most large-scale production facilities have been completely shut, nearly every other automaker has announced it is closely monitoring the situation and will make decisions based on available products. 

The virus has led to shutdown of factories of major automotive giants in the US, China, India, Italy and so on. In India, with complete lockdown and closure of plants in many towns and cities, the Indian automotive industry is headed towards a massive slowdown. As per reports, the sector would face not only supply side pressure but also demand side and export pressures if the spread of Covid-19 continues for over two months.

The disruption in the availability of Chinese raw materials and the shutdown of plants are hampering production across all segments, namely passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and electric vehicles. This situation is expected to only worsen. Although the Indian auto industry had maintained inventory at the beginning of the year, the unfolding events are quickly dwindling the stock.

Indian auto ancillaries and original equipment manufacturers (OEMs) have about 27 percent import dependence on China for key parts and accessories. The extended production halts in China have created supply-side risks for domestic auto companies. Further, the transition to Bharat Stage-VI vehicles has increased the reliance of OEMs on the import of technologically advanced products. As the deadline for sale and registration of BS IV-compliant vehicles is April 1, 2020, the Federation of Automobile Dealers’ Associations (FADA) in India has filed a petition with the Supreme Court seeking a deadline extension till May-end. Around 720,000 BS-4 vehicles are yet to be sold in the Indian market.

The fight against the coronavirus is posing an enormous challenge for public health authorities across the globe. And shortages of respirators and other medical equipment has gotten national governments requesting non-medical device manufacturers for help in a wartime-like effort.

Ford and General Motors are evaluating the possibility of making ventilators amid fears the life-saving devices might become scarce in the US amidst the Covid-19 pandemic. Ventilators are devices that deliver oxygenated air to the lungs while helping carbon dioxide escape. This technology is vital to saving lives, but there are right now only a limited number of ventilators in hospitals.

Similarly, car companies in the UK are also offering to produce ventilators should the need arise. Recently, the British government had reached out to firms including Rolls-Royce, Airbus, Jaguar Land Rover, and Vauxhall to discuss the prospect of manufacturing ventilators.

Addressing these incredibly tough times amidst the Covid-19 lockdown, a few Nepali automotive companies have come forward to join hands with the government to help combat the spread. Laxmi Group and Vishal Group have announced a contribution of Rs 1 crore each to the government-established Coronavirus Prevention and Control Fund. Similarly, Syakar Trading Company in collaboration with the Nepal Medical Association has initiated the ‘Corona Helpline Center’.