Covid Driving China’s EV Sector to Distraction

By Glenn Dyer | More Articles by Glenn Dyer

China’s April trade data is out later today and will show the early scars from the surge in Covid driven lockdowns across much of the country which continues with little real improvement.

Activity surveys at the start of the month saw manufacturing and service sector levels contract to their lowest level since the first pandemic in early 2022 and conditions will not improve as the government of President Xi Jinping tries to eliminate Covid rather than control and start living with it.

More and more western companies are feeling the impact of the problems in China on supply chains – that is going to continue for the rest of 2022 and local and foreign car companies will not escape the impact.

While the trade data today and inflation on Wednesday are two of the more important bits of Chinese economic data, we saw far more important news on Friday for the rapidly growing electric vehicle (or New Energy Vehicles, or NEVs as the Chinese describe them), renewable metals (especially lithium) sectors of a near 50% slide in car sales last month as the growing Covid lockdowns crushed supply and demand.

Confirmation of the damage comes Thursday when the official car sales data for April will be released.

But judging by Friday’s news we could see the second largest monthly slide for China since February 2020 and the first weeks of the pandemic.

China’s car makers association on Friday estimated that sales in April dropped 48% year-on-year because President Xi’s extreme zero COVID-19 policies shut factories, restricted buyers visiting car dealers and put the brakes on spending.

That was after a surprise 11% drop in March (and an 18.7% rise in February). We don’t know any early data on sales of NEVs in April, but while overall car sales dropped in March, NEV sales leapt 122% from a depressed month a year earlier.

That helped push the total number of vehicles sold in the first quarter to a record (for the first quarter) of 1.184 million – of which 1.07 million were passenger NEVs.

But Friday’s industry sales estimate for April looks like the steepest decline in sales for the world’s largest auto market since the 79% slide in February, 2020.

That would leave Chinese car sales over the first four months of the year down more than 12% from a year earlier, the China Association of Automobile Manufacturers said on Friday. Car sales had risen by half a per cent in the first quarter to 6.52 million units.

Showrooms, stores and malls in Shanghai were shut over the month and its 25 million residents were unable to shop online for much beyond food and daily needs,

But other cities and regions have also seen lockdowns and restrictions – Beijing for example, Jilin province in the north and many of its major cities

Reuters reported that a survey by an association of China’s auto dealers showed that showrooms in 34 cities had been closed by COVID-19 control measures in April, most for more than a week.

So what’s this mean for sales of EVs? Friday’s report didn’t provide a breakdown but sales have been solid, improving after a sharp fall in January as government subsidies were cut.

March saw that big rise in the number of NEVs sold 422,000, less than 100,000 from the record 510,000 sold in December 2021 ahead of the sales subsidy being reduced by the government at the end of 2021.

Tesla’s sales in China had jumped 56% in the March quarter, but there have been no figures for April.

But April saw a slide as sales as figures from three of China’s best known EV makers last week revealed

Sales reported by Xpeng Inc, NIO Inc and Li Auto plunged by 41.6%, 49% and 62% respectively in April versus March, data from the companies showed.

SAIC Motor, China’s largest auto company by sales and partner with Volkswagen and General Motors, reported a 60% fall in its April sales.

But one Chinese car maker went against the trend- BYD – part owned by Warren Buffett’s Berkshire Hathaway, told the Hong Kong Stock Exchange late last week that it was one of the few companies to lift sales in April.

It said it sold 106,042 new energy vehicles (NEVs) in April, up 1% from March ’s 104,878 units and up a huge 313% from a year ago.

The disruption to Tesla’s plant has been one of the highest profile consequences of China’s zero Covid policy – The company hopes to be back in full production by May 16, but whether sales recover by then is very problematic.

In Australia, industry data shows Tesla’s deliveries here in April fell to just 52 in April from 3,097 in March as the crunch in Shanghai hit hard.

As we reported at the weekend, CATL, China and the world’s biggest battery maker saw a 24% slide in March quarter earnings on higher revenues as the company struggled with a failed metal hedging strategy and an inability to recover rising lithium and nickel pries especially from higher pricers for their batteries.

CATL is the battery supplier to Tesla in Shanghai and that helps explain the 36% slide in the value of the company’s shares so far this year with an 8.1% drop last week alone.

ASX lithium investors should be alert to this data this week. it’s not going to derail the boom, but could interrupt it for a while and cool hot lithium prices and allow producers to catch up and stockpile some supplies.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →