Polestar, the electric vehicle spin-off of Volvo, announced Tuesday that it had launched production of its second model, the Polestar 2, at a plant in Luqiao, China. The automaker’s news release might not have generated much attention in times past, but in the era of the coronavirus pandemic, it served as a bright light at the end of a tunnel that, for some, still seems endless.
As the source of the coronavirus outbreak, China also was the first country to go on lockdown, most of its auto plants closed by early February and its overall new vehicle sales dropping by about 79% last month, according to industry data. Now, the Chinese auto industry is beginning to ramp back up, though reaching anything close to normalcy could be months away, according to experts.
“The world is facing enormous upheaval in the face of the coronavirus pandemic,” Polestar CEO Thomas Ingenlath said in the company’s news release. “We start production now under these challenging circumstances with a strong focus on the health and safety of our people. This is a great achievement and the result of huge efforts from the staff in the factory and the team securing the supply chain.”
(Industry experts issue dire forecast for 2020 US auto sales.)
Polestar is by no means the only automaker getting its Chinese operations back up to speed. Toyota reopened a key facility in Guangzhou last week and many other automotive factories are now in various stages of ramp-up, according to Michael Dunne, founder of the Asian automotive marketing firm ZoZoGo, even in Hubei province, the epicenter of the original coronavirus outbreak.
But not everything is going smoothly, Dunne noting that many Chinese factories have struggled to get a full complement of workers back on the job, limiting their production capacity.
“Clearly, we are tackling challenges” due to an “unprecedented” crisis, Jochen Goller, president and CEO of BMW Group Region China, said in a new video release.
Those challenges include not just the temporary shutdown of China’s auto manufacturing network but the all but complete collapse of demand. Initial reports suggest that sales are beginning to pick up again as Chinese citizens in much of the country come out from under strict shelter-in-place orders.
“Incoming orders in China have significantly increased again,” Peter Nota, BMW’s board member for global sales, said this week. “But it is too early to make a forecast for the entire year.”
Conferring with other industry experts, analyst Dunne said the best estimate is that China’s car market is still in the lower levels of a recovery that is “U-shape(d), with demand gradually recovering to normal levels by Q4. Total demand for 2020 could fall between 20 and 25%, they say. That equates to between 4 and 5 million vehicles. That is almost equal to the Japan market for an entire year. “
(Detroit automakers temporarily shutter North American production.)
The Chinese government is reportedly looking at ways to speed things back up. Some experts anticipate it will come up with new stimulation policies like those that helped spark its electric vehicle market to become the world’s largest within barely a two-year period.
Earlier this month, the China Association of Automobile Manufacturers outlined a list of possible steps the Beijing government could move on, including cuts to purchase taxes and measures to incentivize car sales in rural markets. CAAM also wants to see authorities restore the incentives for buyers of plug-based vehicles that were largely eliminated last July.
“The government will consider these proposals but it is unlikely they will launch so many policies,” Yale Zhang, head of Shanghai-based consultancy AutoForesight, told the South China Morning Post. “Measures like cuts to the purchase tax, support for rural markets and easing purchase restrictions on new energy vehicles are reasonable and would have an immediate impact.”
(Detroit’s Big 3, along with Tesla, move fast to address shortage of masks, ventilators.)
How fast the Chinese market does recover will depend not only on what is done by regulators, manufacturers and their dealers, but what happens now with the coronavirus pandemic.
After an initially slow response and an effort to downplay the crisis, Chinese regulators enacted some of the most aggressive lockdown measures seen anywhere in the world. In recent days, reports of new infections have all but vanished, at least according to official reports.
But Hong Kong, which also took assertive moves to contain the virus, has seen a small resurgence of infections in recent days. Whether that could repeat itself in Mainland China is yet to be ruled out, but it would deal another systemic shock to the auto industry were that to happen.