Tesla Halted, Chips Pile Up as Shanghai Lockdown Upends Business
(Bloomberg) -- Tesla Inc.’s factory shutdown has stretched out to at least 12 days, much-needed semiconductors are piling up at manufacturers amid a shortage of truck drivers, and bankers are camping in their offices as Shanghai’s Covid-19 lockdown disrupts businesses in China’s financial hub.
Cases are at a record in the city, now the epicenter of China’s worst outbreak since the start of the pandemic, and the lockdown has been extended indefinitely. While the country is sticking to its rigid Covid-Zero containment playbook, President Xi Jinping’s request to limit the economic consequences is becoming harder to achieve in the face of the highly transmissible omicron variant.
The lockdowns and virus containment measures threaten to slow China’s economic growth this year to below the government’s 5.5% target, according to Bloomberg Economics. They also risk further havoc on already stressed global supply chains, with companies from chip giant Semiconductor Manufacturing International Corp. to a South Korean noodle maker caught up in the fallout.
Electric-car pioneer Tesla on Tuesday told some suppliers and workers that its Shanghai factory -- which has been shuttered since the city went into a phased lockdown on March 28 -- will remain closed at least through Thursday, according to people familiar with the matter, who asked not to be identified because the information isn’t public.
Following a separate a two-day shutdown in March, Tesla has now lost 12 days of production in recent weeks, including this week’s holiday. The first Gigafactory outside Tesla’s home country produced half of its vehicles last year, and builds cars not just for the lucrative Chinese market, but for export to Europe and elsewhere in Asia.
A spokesperson for Tesla China didn’t immediately respond to a request for comment.
Staff at banks and fund management firms that were called back to work before the lockdown started remain stuck in their offices.
One fund manager said he and colleagues plugged up a floor drain on concern it could facilitate viral spread after a few people on the level above tested positive but were delayed moving into a quarantine facility, mandatory for all Covid cases in China regardless of severity.
Workers are worried about an outbreak emerging, and while the firm has been trying to come up with a solution it’s a difficult problem to solve, said the person, who asked not to be named talking about private company matters.
What Bloomberg Economics says:
Shanghai’s lockdown has dealt a blow to China’s economy. But an out-of-control outbreak would lead to an even worse outcome. Choosing lockdowns -- despite their growing costs -- suggests China is not yet ready to take an alternative Covid exit path. -- Eric Zhu, economist
Some companies, including chip giants Taiwan Semiconductor Manufacturing Co. and SMIC, as well as iPhone assembler Pegatron Corp. have been able to keep plants running by implementing a so-called closed loop system where workers live on-site and are tested regularly. For the likes of SMIC, a new headache is emerging: securing the trucks they will need to get their chips to clients. A representative for SMIC declined to comment on logistics.
South Korean companies are also being affected, with operations at the Shanghai plants of noodle maker Nongshim Co., confectionery manufacturer Orion Corp. and cosmetics producer Amorepacific Corp. suspended since early this month. The companies all told Bloomberg News that they have been following instructions from local authorities and don’t know when they can reopen.
Singapore’s Spindex Industries Ltd., which supplies precision components used by the automobile industry, has extended the closure of its Shanghai plant until April 10 or whenever local authorities allow work to resume. The uncertainty over the extension of the lockdown is expected to have a negative impact on the company’s financial performance, it said in an exchange filing.
©2022 Bloomberg L.P.
With assistance from Bloomberg