When Tesla’s Shanghai plant and other car factories were closed in the last two months by emergency measures to control China’s largest COVID-19 outbreak, the hot question was how quickly they could restart to meet growing demand. .
But with its fourth-week blockade in Shanghai and similar measures in dozens of smaller cities, the world’s largest boom in the electric car market has collapsed.
Other companies, from luxury goods manufacturers to fast food restaurants, also offered a first reading of lost sales and shaky confidence in recent weeks, even as Beijing introduced measures to support COVID-affected industries and boost demand.
Joey Watt, CEO of Yum China, which owns KFC and Taco Bell, said in a letter to investors that sales in April were “significantly affected” by COVID’s controls. In response, the company simplified its menu, simplified staff and encouraged group orders for blocked communities, she said.
The urgent question now is: how and when will Chinese consumers start buying everything – from Tesla to taco – again?
In China’s once-hot electric car market, the recent turmoil is a prime example of one or two economic shocks, first to supply and then to demand, from Beijing’s firm application of COVID control to the world’s second-largest economy.
Before Shanghai closed in early April to control the COVID-19 outbreak, electric vehicle sales were booming. Tesla’s sales in China jumped 56% in the first quarter, while sales of electric vehicles from its larger competitor in China, BYD, increased fivefold. Then came the blockade.
Shanghai’s showrooms, shops and malls were closed, and its 25 million residents were unable to shop online for much beyond food and daily necessities due to supply difficulties. Nomura analysts estimated in mid-April that 45 cities in China, accounting for 40 percent of gross domestic product (GDP), were under full or partial blockade, with the economy at increasing risk of recession.
The blockades in Shanghai and other Chinese cities are weighing on the Chinese economy [File: Alex Plavevski/EPE-EFE]
The China Automobile Association estimates that China’s retail car sales were 39 percent lower in the first three weeks of April than a year earlier.
COVID’s control measures cut supplies, car dealers refrained from promoting new models, and sales fell in China’s richest markets, Shanghai and Guangdong, the association said.
A retailer of a first-class German car brand in Shanghai’s Jiangsu province said Reuters sales fell one-third to one-half in April, citing blockages and transportation difficulties that made it difficult to deliver orders.
He was even more worried about the effect on consumers’ purchasing power, he said, declining to give his name because he was not allowed to speak to the media.
“It could be worse than the first wave of COVID in 2020, when the economic recovery was fast and strong. “There is more uncertainty in the economy these days, and stock and real estate markets are not doing well,” he said.
“Much will depend on how quickly these restrictions can be lifted, but the coming weeks could be difficult,” Helen de Tiso, chief financial officer of French spirits maker Pernod Ricard, told Reuters on Thursday.
Kering, which owns luxury brands including Gucci and Saint Laurent, said “a significant portion” of its stores were closed in April.
“It is very difficult to predict what will happen after the blockade,” said Jean-Marc Duplais, Kering’s chief financial officer.
Apple also warned of its latest results on COVID-affected demand in China.
Stimulate demand
City officials from Beijing to Shenzhen are trying to stimulate some demand by handing out millions of dollars in shopping vouchers to encourage residents to spend.
On Friday, Guangdong, a manufacturing plant with a larger economy than South Korea, launched its own incentives to try to restart sales of electric vehicles and plug-in hybrids.
These include subsidies of up to 8,000 yuan ($ 1,200) for a range of what China classifies as “new energy vehicles,” including Volkswagen and BYD. Tesla, China’s second-largest electric car salesman, was excluded from the subsidy program.
The American carmaker did not respond to a request for comment.
Chongqing, another car manufacturing center, said in March that it would offer cash of up to 2,000 yuan ($ 300) to buyers who exchange old cars for new models and set aside another $ 3 million for other sales promotion measures.
While noting such measures, Credit Suisse analysts say they believe COVID’s control measures have put both online and offline consumption in a downward spiral.
“We see that the consumer sector is at great risk if the prolonged pandemic and further tightening continue in China,” they said in a research note from April 19.
Add Comment