China’s COVID hardline is eating away at everything from Teslas to tacos

Reuters

SHANGHAI — When Tesla’s Shanghai factory and other auto plants were shut down for the past two months by emergency measures to control China’s largest outbreak of coronavirus disease 2019 (COVID-19), the A burning question was how quickly they could restart to meet growing demand.

But with Shanghai’s lockdown entering its fourth week and similar measures imposed in dozens of smaller towns, the world’s biggest booming electric car market has gone bankrupt.

Other companies, from luxury goods makers to fast-food restaurants, also offered a first reading of lost sales and shaken confidence in recent weeks, even as Beijing rolls out measures to help industries hit by the coronavirus crisis. COVID and drive demand.

Joey Wat, chief executive of Yum China, which owns KFC and Taco Bell, said in a letter to investors that April sales were “significantly affected” by COVID controls. In response, the company simplified its menu, streamlined staff and encouraged bulk ordering for gated communities, she said.

The pressing question now is: how and when will Chinese consumers start buying everything from Teslas to tacos again?

In China’s once-hot electric vehicle (EV) market, the recent turmoil is a stark example of an economic punch, first on the supply side, then on the demand side, of Beijing’s strict enforcement. COVID checks in the world’s second largest economy.

Before Shanghai was locked down in early April to contain an outbreak of COVID-19, sales of electric vehicles had skyrocketed. Tesla’s sales in China had jumped 56% in the first quarter, while sales of electric vehicles from its biggest rival in China, BYD, had increased fivefold. Then came the lockdowns.

Shanghai’s showrooms, stores and malls have been closed and its 25 million people have been unable to shop online for far beyond food and daily necessities due to bottlenecks Delivery. Nomura analysts estimated in mid-April that 45 cities in China, accounting for 40% of its GDP, were under full or partial lockdown as the economy was at growing risk of recession.

The China Passenger Car Association estimated retail passenger car deliveries in China were 39% lower in the first three weeks of April than a year earlier.

COVID control measures reduced shipments, auto dealers held back from promoting new models and sales fell in China’s wealthiest markets, Shanghai and Guangdong, the association said.

A dealership of a premium German car brand in Jiangsu province, which borders Shanghai, told Reuters sales fell by a third to a half in April, citing blockages and bottlenecks in trucking which made it difficult to deliver orders.

He was even more worried about the impact on consumers’ purchasing power, he said, declining to give his name because he was not authorized to speak to the media.

“It could be worse than the first wave of COVID in 2020, when the economic recovery was quick and strong. Nowadays, there are more uncertainties in the economy and the stock and property markets are not doing well,” he said.

DOWNWARD SPIRAL

“It will all depend on how quickly these restrictions can be lifted, but the coming weeks could be difficult,” Helen de Tissot, chief financial officer of French spirits maker Pernod Ricard, told Reuters on Thursday.

Kering, which owns luxury brands such as Gucci and Saint Laurent, said a “significant part” of its stores were closed in April.

“It’s very difficult to predict what will happen after the lockdown,” said Jean-Marc Duplaix, chief financial officer of Kering.

Apple also warned in its latest results about COVID-hit demand in China.

Municipal authorities from Beijing to Shenzhen are trying to stimulate some demand by handing out millions of dollars in vouchers to encourage residents to spend.

On Friday, Guangdong, a manufacturing powerhouse with a bigger economy than South Korea, rolled out its own incentives to try to revive sales of electric vehicles and plug-in hybrids.

These include grants of up to 8,000 yuan ($1,200) for a select range of what China classifies as “new energy vehicles,” including from Volkswagen and BYD. Tesla, China’s second-biggest electric vehicle seller, was kicked out of the subsidy program.

The American automaker did not respond to a request for comment.

Chongqing, another major auto manufacturing hub, said in March it would offer up to 2,000 yuan ($300) in cash to buyers who trade in old cars for new models and set aside another $3 million for other measures to stimulate sales.

While noting such moves, Credit Suisse analysts have consistently said they believe COVID control measures have put online and offline consumption on a downward spiral.

“We consider the consumer sector to be at major risk if the prolonged pandemic and further tightening continues across China,” they said in an April 19 research note. — Reuters

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