Source: Qin Shuo Circle of Friends Author: Irene Zhou
Cover/Figureworm Creative
Recently, there have been many outbreaks of epidemics in China, and the static management in Shanghai has lasted for more than half a month, in addition to the problem of food supply, supply chain disturbance has become the number one concern of enterprises and investment institutions.
The automotive and consumer electronics industries are characterized by a long industrial chain and require the cooperation of upstream, middle and downstream, so they have been greatly affected in the context of the epidemic in many places.
In addition to the real estate industry, the automotive industry is arguably another of the most critical pillars of the national economy. The latest news illustrates the dilemma facing the factory at present - it is reported that workers at Volkswagen AG's Shanghai factory can watch movies in the closed-loop factory and arrange recreational activities for exercise after a long period of lockdown.
But there's a reason for that — at least a few dozen employees initially slept voluntarily in the factory to keep the plant running on a closed-loop system, but as the closure time increased, workers couldn't go home on the one hand, and the supply of needed auto parts was interrupted on the other, and the factory couldn't function properly even in a closed loop.
According to the author's understanding, most automobile factories have entered a state of shutdown, and even if the depots that are still operating normally in the closed-loop management in the first week have encountered the challenge of material shortage and failure to deliver. Cui Dongshu, secretary general of the Association, recently said that according to estimates, the epidemic in Shanghai and other places is expected to bring 20% of the production reduction loss to the automotive industry. At the same time, the Jiangsu and Zhejiang emblem belts with Shanghai as the core are also the core areas for the supply of core auto parts, and the epidemic in Shanghai will have a greater impact on the supply of key parts in the automotive industry.
Positively, the guidelines for resuming work and production have become clearer. On April 16, the Shanghai Commission of Economy and Information Technology issued the Guidelines for the Prevention and Control of the Epidemic in Shanghai Industrial Enterprises Resuming Work and Production (First Edition). The guidelines make it clear that all district governments, towns and parks should actively support enterprises to resume work and production, guide enterprises to "one enterprise, one policy", and effectively do a good job in epidemic prevention and control; they should do a good job in setting up nucleic acid testing points and providing testing services, deal with medical waste in a timely manner, and provide support services for epidemic prevention materials and living materials.
1/ The automotive industry is facing a big test
Investment managers of a number of foreign institutions told this writer that since two weeks ago, when most people were still focusing on the issue of food supply assurance, international investors began to worry about possible supply chain disturbances in the future, especially in the automotive, semiconductor and consumer electronics industries.
On the evening of April 10, a news completely detonated the mood - Li Bin, the owner of Weilai Automobile, who was rumored to be "exchanging green onions for salt" at his home in Shanghai, said that supply chain partners in many places have stopped production, vehicle production has been suspended, and many vehicles will be delayed in the near future.
Shanghai and Jilin Provinces are China's top automotive manufacturing centers. Recently, both places have implemented strict epidemic prevention and control measures, resulting in the closure of some automobile factories and the interruption of logistics and transportation.
A recent Goldman Sachs report shows that 20 percent of the country's auto production is facing challenges. According to the Association of Automobile Manufacturers, in 2021, Shanghai produced 2.8 million vehicles (11% of the country's automobile production) and Jilin Province produced 2.4 million vehicles (9% of the national automobile production). Overall, the two places account for 20% of domestic automobile production. China's automotive industry produces about 2 million passenger cars and commercial vehicles per month. In theory, a month-long lockdown in Shanghai and Jilin province would result in the loss of 400,000 vehicles.
In addition to the direct impact on the terminal production links, the indirect disturbance of the industrial chain is more concerned, for example, the spillover risk of supply shortage to the automobile manufacturing industry in other provinces. In addition to automakers, Jilin and Shanghai have a large number of upstream parts suppliers.
Referring to the production data of Wuhan in 2020, when the city was locked down in February-March of that year to fight the first wave of the new crown pneumonia epidemic, China's automobile production was halved. National production fell to 1 million units per month, down about 50% year-on-year. A small part of this is due to the suspension of production by automakers in Wuhan, which accounted for 6% of the country's automobile production in 2019. The main impact is the disruption of the supply chain caused by the lockdown in Wuhan and the disruption of the domestic highway network.
At present, given that the scale of the automobile industry in Jilin and Shanghai is larger than that of Wuhan, most institutions believe that the spillover risk cannot be ignored, and it is expected that the sealing and control measures will increase the downside risk of automobile production in the country by another 10%.
According to the statistics of some institutions and journalists, the auto suppliers located in Shanghai and Changchun mainly include:
United Automotive Electronics (Automotive Electronics), Bosch Shanghai (Automotive Electronics), Bosch Changchun (Automotive Electronic Drive Products, etc.), Yanfeng Andotto (Automotive Interiors and Seats), CATL Era (Battery Module), Huayu Automobile (Automotive Interior Exterior), Shanghai Intil Delivery Auto Parts (Seats), Shanghai Changkong Machinery (Automotive Structural Components), Jingxi Heavy Industry (Supplier of Suspension and Brake Components), Shanghai Daimei Automotive Interior Parts (Automotive Interior), Yongtai Technology (Auto Parts), Takada (automotive safety device), Continental Automotive Electronics (Changchun) Co., Ltd. (engineering electronic control system), Changchun FAW Fuweihera lamp (automotive lamp).
Several top automakers also have significant exposure to risk. Tesla Giga Shanghai has a production capacity of 486,000 units in 2021; Volkswagen has two joint ventures in China, FAW-Volkswagen will produce 1.7 million vehicles in 2021 and SAIC-Volkswagen will produce 1.2 million vehicles, both located in Jilin and Shanghai, and two domestic automakers, SAIC Motor Group, will produce 5.5 million vehicles and FAW Group will produce 3.3 million vehicles, both of which are geographically similar. The production of the above-mentioned enterprises has been affected to varying degrees.
According to the author's understanding, Tesla's Shanghai factory was shut down twice in March, and the second time was stopped from March 28 to now, and production did not resume on April 4 as expected. According to the latest news, Tesla resumed work on Monday, April 18. In March, Tesla assembled 55,000 vehicles at its Shanghai plant and sold more than 65,000 units in China, which was originally under-capacity; after Changchun announced the closure on March 11, FAW-Volkswagen initially planned to stop production for four days.
Goldman Sachs said that the more optimistic scenario assumes that Shanghai's control measures will return to normal within 18 days (2 times that of Shenzhen), and Jilin will return to normal in 27 days (compared to Shanghai's 50% increase, mainly due to slow progress in the past month and medical/operational resources are lower than first-tier cities), that is, assuming that Shanghai normalizes on April 18 and Jilin normalizes on April 27; the more empty scenario assumes that the sealing and control measures are gradually normalized, and 50% of Shanghai's production is restored within 18 days. Fully back to normal within 30 days. Suppose that Jilin will spend 50% more time, that is, Shanghai will fully return to normal on May 1, and Jilin will fully return to normal on May 15.
2/ Work stoppages and logistics interruptions are still two major challenges
With the extension of the sealing time, the two major challenges are constantly prominent. First, production interruption, even if the enterprises that have closed-loop management, such as some semiconductor and automobile companies, have to temporarily stop work due to the emergence of positive infections after many days of closed-loop, and some enterprises are facing material shortages and cannot continue production. Even for car companies specializing in autonomous driving, the testing of autonomous driving technology needs to be carried out in factories, and it is impossible to really achieve remote work; the second is the challenge of logistics bottlenecks.
In terms of production interruption, the secretary of the board of directors of a semiconductor company mentioned to the author: "Our Shanghai factory has been shut down due to the epidemic, due to poor logistics, without a pass, Shanghai materials and personnel can not be relocated to the factory in Anhui." In addition, nearly 50% of our parts are purchased from overseas, and after the customs stall, the normal production activities of the factory have been affected. ”
In terms of logistics challenges, the secretary of the board of directors of a leading enterprise in the world's top electronic manufacturing service industry mentioned to the author that the current challenges include: imported goods (air, sea) are blocked at airports and ports, and it is impossible to clear customs and pick up goods smoothly. Export air cargo due to warehouse sealing, reduced operators, reduced flights, can not be shipped on time; domestic logistics channels are blocked, vehicle access is tightened everywhere, inter-provincial transportation is extremely difficult, Jiangsu, Zhejiang and Shanghai can not communicate with each other, cold chain transport vehicles are even more difficult to find. Transportation costs have risen sharply, and companies have spent a lot of manpower and financial resources to find cars and find possible solutions.
Some companies with large import and export volume and belonging to key enterprises in the region, under the premise of epidemic prevention and control and isolation, the relevant government departments have also given help and support to the company to overcome the logistics supply problem. For example, some of the company's materials cannot be transported in the logistics park. The company coordinates the direct delivery of materials to the airport, and after customs clearance from the airport, it can directly pull the materials into the factory and reduce intermediate links. However, over time, there may still be challenges, especially the degree of collaboration between enterprises and end customers.
In addition, the entry and exit of funds has also encountered certain obstacles. The secretary of the board of directors of the above-mentioned semiconductor companies mentioned to reporters, "The parts and components used in our semiconductor equipment need to be purchased from overseas on a regular basis, the bank's current counter is closed for overseas capital remittances, the bank's internal system needs to do customs declaration and internal audit, and the current approval order cannot be carried out, resulting in obstacles to the remittance of funds." ”
In fact, some special business can not be handled through the online channel, you need to provide information to the bank, the bank must be reviewed in the background, in order to complete the whole process, such as large exchange of foreign exchange, etc. In addition, if it is necessary to purchase overseas machinery and equipment, the funds cannot be put into overseas suppliers at present, because the bank's management of the special account for funds is more stringent, and it is necessary to provide relevant information to allow remittances, which may need to be circulated through offshore channels.
In the past two years, many semiconductor companies have continuously transformed and upgraded, and there is no shortage of enterprises that have switched tracks from traditional industries to enter the semiconductor industry, which involves accelerating transformation through mergers and acquisitions. It is understood that in recent years, a semiconductor equipment company has continued to acquire overseas companies or entrepreneurial teams through epitaxial mergers and acquisitions. The person in charge of the enterprise said: "At present, we still have some mergers and acquisitions projects in hand, but all of them are currently suspended, facing the problem of having signed an investment agreement with the other party but the funds cannot go out, and the overseas counterparties cannot understand the current 'force majeure', and we do not rule out the need to consider the way of defense." ”
In addition to the challenges faced by the production link, many enterprises are also facing the problem that the annual report cannot be released as scheduled. \
As early as the end of March, there were media reports that factories in some areas were shut down and production stopped, and the preparation and disclosure of the 2021 annual reports of listed companies were delayed. There is information that from mid-March to the end of March, Huida Sanitary Ware (603385. SH), Jingqi Electronics (430387. NQ) and others issued an announcement of factory shutdown in some areas affected by the epidemic. Feile Audio (600651. SH), Chinese Media (600373. SH) and other listed companies have postponed the preparation and disclosure of their 2021 annual reports.
A number of enterprises that have time to disclose their annual reports in March mentioned to the author that the recent Shanghai Securities Regulatory Bureau and the Shanghai Stock Exchange may not be able to release a quarterly report and annual report before April 30 in the statistics of Shanghai enterprises, many companies have not had time to release in March, and the enterprises originally planned to be released in April may currently be disrupted, because the beginning of April is the key period for accounting firms to collect letters and conduct on-site interviews to prepare audit drafts, but at present accountants and lawyers cannot go to the scene, and audit papers are difficult to produce. In addition, the official seal is also locked in the company and cannot be used. A number of business people said that they are currently trying to communicate with the Shanghai Securities Regulatory Bureau and the Shanghai Stock Exchange whether they can be extended, but there is no progress at present.
On the evening of April 14, He Xiaopeng, the founder of Xiaopeng Automobile, sent a circle of friends, saying that if Shanghai and the surrounding supply chain companies cannot find a way to dynamically resume work and production, all Chinese automakers may have to stop work and production in May. Even Huawei's Yu Chengdong is sending a circle of friends to support He Xiaopeng: It is true.
Last weekend, an article titled "Middle-aged men will not ask for help until they have to", became popular in the circle of friends, which is to describe the current situation of these middle-aged entrepreneurs.
In fact, the market players under the epidemic are struggling to survive, and all walks of life are under tremendous psychological pressure and making sacrifices to varying degrees, because everyone has a glimmer of hope - to resume work and production as soon as possible and return to normal life.
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