China’s COVID flatline eats everything from Teslas to tacos, auto news and ET Auto

Tesla’s sales in China jumped 56% in the first quarter, while sales of electric cars from its biggest competitor in China, BYD, have multiplied fivefold. Then came the closings.

SHANGHAI — When Tesla’s Shanghai plant and other auto plants have been shuttered for the past two months through emergency measures to control the largest outbreak of COVID-19 in China, the burning question was how quickly they could begin to meet rising demand. But with Shanghai’s lockdown entering its fourth week, and similar measures being imposed in dozens of smaller cities, the world’s largest and thriving electric vehicle market has collapsed.

Other companies from makers of luxury goods to fast food restaurants have also given a first reading of lost sales and rattled confidence in recent weeks, even as Beijing has implemented measures to help industries affected by the coronavirus and stimulate demand.

Joey Watt, CEO of Yum China, which owns KFC and Taco Bell, said in a letter to investors that April sales were “significantly affected” by COVID controls. In response, the company streamlined its roster, streamlined hiring and boosted bulk orders for closed communities, it said.

The burning question now is: How and when will Chinese consumers start buying everything from Teslas to tacos again?

In China’s once-hot electric car market, the recent turmoil is a stark example of the two-way economic hit, first to supply and then to demand, from Beijing’s tough implementation of COVID controls across the world’s second-largest economy.

Before Shanghai closed in early April to contain the COVID-19 outbreak, sales of electric vehicles were booming. Tesla’s sales in China jumped 56% in the first quarter, while sales of electric cars from its biggest competitor in China, BYD, have multiplied fivefold. Then came the closings.

Showrooms, stores and malls in Shanghai have closed and its 25 million residents have been unable to shop online for much food and daily necessities due to delivery jams. Analysts at Nomura estimated in mid-April that 45 cities in China, which account for 40% of GDP, were under full or partial lockdown, with the risk of economic recession growing.

The China Passenger Car Association estimated that retail shipments of passenger cars in China were 39% lower in the first three weeks of April than a year earlier.

The association said that measures to control the Corona virus have reduced shipments, car dealers have refrained from promoting new models, and sales have plunged in China’s richest markets in Shanghai and Guangdong.

A German luxury car brand dealer in Jiangsu province, which borders Shanghai, told Reuters that sales fell by a third to half in April, citing shutdowns and truck jams that made it difficult to deliver orders.

He said he was more concerned about the impact on consumers’ purchasing power, and declined to be named because he was not allowed to speak to the media.

“It may be worse than the first wave of COVID in 2020, when the economic recovery was fast and strong. Nowadays there are more uncertainties in the economy, stock and real estate markets are not doing well,” he said.

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“A lot will depend on how quickly these restrictions are lifted, but the coming weeks could be difficult,” Helen de Tissot, chief financial officer of French spirits maker Pernod Ricard, told Reuters on Thursday.

Kering, which owns luxury brands including Gucci and Saint Laurent, said a “significant portion” of its stores closed in April.

“It is very difficult to predict what will happen after the shutdown,” said Jean-Marc Duplex, chief financial officer of Kering.

Apple also warned in its latest results about demand affected by the coronavirus in China.

City authorities from Beijing to Shenzhen are trying to stimulate some demand by giving out millions of dollars in shopping vouchers to encourage residents to spend.

On Friday, Guangdong, a powerful manufacturer with an economy larger than South Korea’s, rolled out its own incentives to try to resume sales of electric vehicles and plug-in hybrids.

These include subsidies of up to 8,000 yuan ($1,200) for a selection of what China classifies as “new energy vehicles,” including Volkswagen and BYD. Tesla, which ranked second in electric vehicle sales in China, was excluded from the subsidy program.

The US automaker did not respond to a request for comment.

Chongqing, another major auto manufacturing hub, said in March it would offer cash up to 2,000 yuan ($300) to shoppers who exchange old cars for new models and allocate another $3 million for other measures to stimulate sales.

Noting such measures, Credit Suisse analysts still say they believe anti-COVID measures have put online and offline consumption into a downward spiral.

“We view the consumer sector as at significant risk if the epidemic continues for extended periods and further tightens across China,” they said in an April 19 research note.

Tesla is desperate to import and sell its electric cars in India, after lobbying officials in New Delhi for nearly a year to cut tariffs, which billionaire CEO Elon Musk says are among the highest in the world.

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