China COVID-19 hard line eats into everything from Teslas to tacos

China COVID-19 hard line eats into everything from Teslas to tacos

Business

A worker in a protective suit carries disinfection equipment as he walks near an area under lockdown in Beijing, China on Apr 29, 2022. (Photo: Reuters/Carlos Garcia Rawlins) A road with little traffic is seen next to an area under lockdown in Chaoyang district of Beijing, China on Apr 27, 2022. (Photo: Reuters/Thomas Suen)

02 May 2022 09:00AM (Updated: 02 May 2022 02:37PM)

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SHANGHAI: When Tesla's Shanghai plant and other auto factories were shut over the last two months by emergency measures to control China’s biggest COVID-19 outbreak, the burning question was how quickly they could restart to meet surging demand.

But with the Shanghai lockdown grinding into its fourth week, and similar measures imposed in dozens of smaller cities, the world’s largest boom market for electric cars has gone bust.

Other companies from luxury goods makers to fast-food restaurants have also offered a first read on the lost sales and shaken confidence of recent weeks, even as Beijing rolls out measures to help pandemic-hit industries and stimulate demand.

Joey Wat, CEO of Yum China, which owns KFC and Taco Bell, said in a letter to investors that April sales had been “significantly impacted” by COVID-19 controls. In response, the company simplified its menu, streamlined staffing and promoted bulk orders for locked-down 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 EV market, the recent turmoil is a stark example of a one-two economic punch, first to supply and then to demand, from Beijing’s hard-line implementation of COVID-19 controls across the world’s second-largest economy.

Before Shanghai was locked down in early April to contain a COVID-19 outbreak, sales of electric vehicles had been booming. Tesla’s sales in China had jumped 56 per cent in the first quarter, while sales for EVs from its larger rival in China, BYD, had quintupled. Then came the lockdowns.

Showrooms, stores and malls in Shanghai were shut and its 25 million residents were unable to shop online for much beyond food and daily necessities due to delivery bottlenecks. Analysts at Nomura estimated in mid-April that 45 cities in China, representing 40 per cent of its GDP, were under full or partial lockdowns, with the economy at a growing risk of recession.

The China Passenger Car Association estimated retail deliveries of passenger cars in China were 39 per cent lower in the first three weeks of April from a year earlier.

COVID-19 control measures cut into shipments, car dealers held back from promoting new models, and sales tumbled in China’s richest markets of Shanghai and Guangdong, the association said.

One dealer of a premium German car brand in Jiangsu province, which borders Shanghai, told Reuters sales plunged by one-third to half in April, citing lockdowns and trucking bottlenecks that made it difficult to deliver orders.

He was even more worried about the impact on consumer spending power, he said, declining to give his name as he was not permitted 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.

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