With coronavirus cases now reported on every continent but Antarctica, the epidemic is expected to have a growing impact worldwide, the auto industry taking a particularly hard hit.
Global motor vehicle sales will dip by 2.5% this year, according to a newly released report by Moody’s Investors Service. Moody’s had already anticipated a decline in demand this year, but by a much more modest 0.9% before the coronavirus showed up in the Chinese city of Wuhan around the beginning of the year.
Already, Chinese car sales have been hard hit, dropping 18% in January and by 92% during the first half of February, according to the China Passenger Car Association, or CPCA. But the impact of the disease is already being felt outside China by both automotive assemblers and their suppliers.
“Investors, automotive suppliers and global media this week are asking me the same coronavirus question,” said Michael Dunne, chief analyst with ZoZoGo, an automotive consulting firm. “Which companies are most vulnerable?”
It’s hard to find a company that isn’t feeling the impact, something reflected in the sharp downturn in automotive stock prices in recent days. Even Tesla, which had seemingly defied gravity for the past several months, has taken a beating, shares on Wednesday dropping as low as $777.30, down from a 52-week high of $968.99.
Some of the hardest-hit companies are those with operations in Wuhan, the epicenter of the coronavirus outbreak. That’s where Nissan’s Chinese headquarters is located. China, noted Dunne, has become Nissan’s “largest and most profitable market globally,” making it particularly vulnerable to the crisis” – and complicating a variety of other problems facing the second-largest Japanese automaker whose shares have tumbled 30% this month.
It’s not just the fact that sales in China have tumbled sharply, however, that is worrying auto industry leaders – and investors. While China is not a significant exporter of fully assembled vehicles it does play a major role in the worldwide auto parts and component network. Hyundai, which is heavily dependent upon Chinese suppliers, was forced to idle some of its home plants this month. And now, with the coronavirus spreading rapidly in that country, the impact is expected to multiply.
For the moment, many plants, such as the new Tesla factory in Shanghai, have reopened. Ford restarted production on February 10 and plans to “continue ramping up our production without compromising the safety of our employees,” a spokesman told trade publication Automotive News.
But Dunne and other analysts caution that many factories are running slow and could face new restrictions if the epidemic worsens.
Even if that doesn’t happen, the impact is expected to be felt for some time – and on a potentially global basis.
Shortages of parts could be felt for some time, both in and outside China. Visteon Corp., a global automotive supplier, is expecting a $60 million hit to revenues for the first quarter alone. Aptiv, which spun off from Delphi several years ago, foresees an $80 million hit.
With the disease now reported worldwide, the question is not only how aggressively it may spread but what will be done in response. China itself took radical measures early on in the epidemic, ordering the closure of schools, offices and factories, among other places where the public congregates, while also limiting travel in many parts of the country.
Italy, which has become the European center for new cases of the disease, is enacting its own restrictions. Meanwhile, several trade shows in Europe, including the Mobile World Congress in Barcelona, Frankfurt’s Light + Building fair have been cancelled or postponed. Organizers of the Geneva Motor Show, which begins on March 3 with a two-day media preview, have said they plan to go ahead with the annual event but “In the context of the coronavirus epidemic afflicting China, (the organizers are) carefully observing the situation and its possible implications.”
Back in China, CPCA Secretary Cui Dongshu told reporters this week that he expects the Chinese market to begin recovering in the weeks ahead.
But Moody’s said its outlook for the industry is, for now, “negative.” And while it does see improvements in 2021, it expects global demand will only rebound then by about 1.5 percent.
With growing concerns as new cases show up around the world and. health officials warning it could be just a matter of time before we see major outbreaks in the U.S., the Moody’s forecast could yet prove to be optimistic.