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Automakers, suppliers scale back, issue profit warnings as coronavirus spreads

Automakers and suppliers suspended production and limited employee travel in China as the country grappled with a rapidly spreading SARS-like coronavirus that has killed 213 people and is threatening a key market for sales and profits.

Fears over the flu-like virus are growing as the number of cases rises and countries warn citizens over travel to China. Several international air carriers have also temporarily suspended flights to the country, disrupting business travel.

The World Health Organization on Thursday declared the outbreak a “public health emergency,” which legally requires states to ramp up response to the crisis, and the U.S. State Department advised American citizens not to travel to China. The United States confirmed a sixth U.S. case of the virus on Thursday, marking the first time the virus has spread from person to person in the country.

Wuhan, the epicenter of the coronavirus that has infected more than 9,700 people worldwide — some 9,720 in mainland China and more than 70 people outside the country — is a leading auto manufacturing, shipping and business hub.

While supply-chain disruptions have been limited so far because many plants are idle for the Chinese New Year holiday, that is expected to change as employers and businesses stay shuttered longer than normal.

China is the world’s largest light-vehicle market though demand has dropped two consecutive years amid slower economic growth, the U.S.-China trade dispute and lower government subsidies for electrified vehicles.

Fluid situation

Automakers probably will dial back production by 15 percent in China this quarter after extending holiday shutdowns due to the potentially deadly virus, a top supplier said.

Aptiv, which makes safety and electrification systems for customers including Volkswagen Group and General Motors, issued the projection along with quarterly earnings results on Thursday.

“It’s a fairly fluid situation, as you might imagine,” Aptiv CFO Joseph Massaro told analysts on the earnings call. He said the effect the virus has on the industry will depend on “the dislocation of labor that went home for the holidays, and how quickly they can all come back — either from a practical perspective or from a government-mandate perspective.”

VW Group, the biggest foreign automaker in China, asked about 3,500 employees in Beijing to work from home for two weeks, starting the first day following the city’s Chinese New Year Holiday, from Feb. 3 to Feb. 17.

Volkswagen said on Thursday its joint venture with FAW Group will not resume output before Feb. 9 and plants in Shanghai it operates with SAIC Motor will restart output on Feb. 10.

Planned deliveries to customers remain unchanged, the company said in a statement.

Volkswagen’s Czech carmaker Skoda Auto postponed business travel to China, its largest market, for an indefinite period because of the spread of the coronavirus but is not planning any staff evacuations, it said Wednesday.

The Czech Foreign Ministry recommended on Wednesday people only travel to China if it is absolutely necessary.

BMW Group will extend factory holidays at plants in Shenyang by one week, until Feb. 9, over travel restrictions imposed to contain the coronavirus, a company spokesman said Thursday.

The measure applies to workers in production, the spokesman added. Office workers will resume working on Feb. 3, but from home.

Robert Bosch CEO Volkmar Denner said the two factories that the world’s largest auto parts maker operates in Wuhan are idled because of the Chinese New Year.

The German manufacturer employs 800 people at the sites that make steering components and thermal systems.

“We’re monitoring how the situation develops to see if production might be down for longer,” Denner told reporters on Tuesday in Stuttgart, Germany. “We’re concerned.”

Ford Motor Co. plans to resume production on Feb. 10 at its manufacturing facilities in China with joint venture partner Chongqing Changan Automobile, a spokesman for the U.S. automaker said on Wednesday.

The plans to resume output in Chongqing and Hangzhou come as local governments have extended Lunar New Year holidays to help rein in the virus.

Tesla’s problems

Tesla Inc. is expecting a one- to one-and-a-half-week delay in the ramp-up of the Model 3, which is being built at a recently launched Shanghai plant, as China grapples with the crisis, CFO Zach Kirkhorn said.

Kirkhorn discussed the impact of the disease on Tesla’s operations in China during the company’s fourth-quarter earnings call Wednesday. He said the automaker is complying with a government-required factory shutdown.

“We are also in the early stages of understanding if and to what extent we may be temporarily impacted by the coronavirus,” he said.

Kirkhorn added it may slightly impact profitability in the first quarter.

The outbreak could also hit profits at Jaguar and Land Rover, parent Tata Motors warned Thursday.

It could hamper Jaguar Land Rover production in China because the epidemic is raising concerns that thousands of Chinese factory workers on extended Lunar New Year holidays may struggle to get back to work next week because of extensive travel restrictions.

The Indian carmaker said the outbreak could impact its profit margin forecast of around 3 percent for the JLR unit in fiscal 2020 at a time when it was making progress on a turnaround plan to improve sales in China.

Suppliers respond

Nvidia Corp., the biggest maker of computer graphics chips and a key auto supplier, told workers in China to stay home and any others returning from the country to work from home for two weeks, people with knowledge of the matter said. Travel to China should be postponed, Nvidia told employees.

Canadian supplier Magna International said it is taking several precautions, including lengthened plant closures at its China-based facilities. Magna operates 68 facilities, from manufacturing to engineering in China, and employs nearly 19,000 people there. Two of the company’s facilities are in Wuhan.

“Magna is closely monitoring all available information from the World Health Organization, the Center for Disease Control as well as public health authorities in various countries, inside and outside of China,” Magna spokeswoman Tracy Fuerst wrote in an emailed statement. “Additionally, our internal health and safety team is coordinating information and resources related to the outbreak, with our primary focus on the wellbeing of our employees.”

The supplier has issued a travel ban to China “on precautionary basis,” the company said.

It is also extending the Chinese New Year holiday at several facilities until Feb. 9, “in order to provide additional time for public health authorities to contain the outbreak.”

Magna is also issuing employee health screenings and workplace hygiene measures at China facilities in provinces where the outbreak has been particularly serious. However, the company didn’t identify those plants or their locations. It’s also taking steps to acquire and ship additional medical supplies to China operations.

Font: Automotive News China

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