Carmakers in China Downplay Impact of Global Chip Shortage

Carmakers FAW-Volkswagen and SAIC-Volkswagen said production has not been completely suspended but only adjusted. (Source: Xinhua)

Volkswagen, the biggest foreign automaker in China, has downplayed the impact of a global chip supply shortage caused by the COVID-19 pandemic, refuting claims that its automotive production has been completely halted.

The German automaker’s joint venture operations in China, FAW-Volkswagen and SAIC-Volkswagen, said productions have not been completely suspended but only adjusted, according to Chinese media.

On Friday, a report by Yuguancheshi (愉观车市), a WeChat account that publishes news in China’s auto industry, cited an unidentified source at SAIC Volkswagen that the company had to stop production due to a shortage in chip supplies.

The report added that FAW-Volkswagen is also expected to suspend production.

“Volkswagen China is closely monitoring the situation and has already started coordinating with headquarters and suppliers to take appropriate countermeasures. So far, there has not been an interruption of delivery to customers,” the company said in a statement on Friday.

“The situation is not as dramatic as it is reported,” a FAW-Volkswagen employee told Jiemian News, an online financial news platform backed by Shanghai United Media.

SAIC-Volkswagen told Jiemian News that the production of new cars has indeed been affected to a certain extent, but the company has not suspended production as rumored.

“This isn’t really an unexpected emergency. We have prepared in advance,” the employee told Jiemian News.

“The supply of chips is a global issue, and it doesn’t only affect the automotive industry or Volkswagen alone,” the person added.

Other Chinese automakers agreed, saying there is no reason to panic.

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A technician works at a chip production company in Qinhuangdao, Hebei province. (Source: Xinhua)

BYD told Jiemian News the company has a well-established industrial chain of new energy batteries, chips and other components, which not only makes the manufacturer fully self-sufficient, but also capable of supplying externally.

Electric vehicle makers XPeng, NIO and Li Auto were also quoted in other Chinese reports as saying they were not affected by the chip shortage threat and production remained normal. Ford, General Motors and Toyota also responded that operations were not interrupted.

“The current supply chain shortage will be temporary, given the fact that the exaggerated situation has prompted the market to panic, but it will have little effect on the price and supply of cars in the market,” China Passenger Car Association secretary-generatl Cui Dongshu told Global Times.

“There is a shortage of supply, not a complete cut-off, and car companies like Volkswagen have adequate chips in stock for at least a month,” said Cui, noting that on-board chips can also be produced domestically if needed.

Most chip companies are located in Europe and supply the products to China-based carmakers and car part suppliers. The component is necessary for an array of functions including manufacturing and development of automobiles’ electronic systems.

However, lockdowns in Europe caused by the global coronavirus pandemic have disrupted production, and chip companies have been unable to meet the demands of China’s auto sector.

Germany-based auto suppliers Continental and Bosch said recently that components delivery bottlenecks could last into 2021 and that this could lead to price hikes.

Dutch automotive chip supplier NXP Semiconductors told customers that it must raise prices of all products due to a “significant increase” in material costs and a “severe shortage” of chips, Reuters reported on Friday.

China’s auto industry is currently undergoing an unexpected rapid recovery. Sales reached 2.573 million units in October, growing 12.5% from a year earlier and showing year-on-year increase for a seventh consecutive month, according to data released by the China Association of Automobile Manufacturers.