China’s Pandemic-Related Restrictions Are Hurting EV Sector, Says Automaker

The containment measures put in place by the Chinese government have had a significant effect on its electric vehicle (“EV”) sector. According to Freeman Shen, CEO of WM Motor, his company has had to shoulder an increased cost of production while dealing with battery and chip shortages and supply chain issues. Despite the industry evolving quickly, he stated that production costs were the biggest challenge.

Interest in both hybrid-powered and battery-only energy vehicles in China has grown over the years. With sales of more than 3.3 million units in 2021, the country became the largest market for electric vehicles in the world. Shen expects that in 2022 the total sale of electric cars in China will reach 5 million units. His company WM Motor reportedly delivered 15,114 vehicles in the last quarter of 2021. This brings the total tally of deliveries to 88,686 since the startup started delivering in 2018.

Other Chinese EV start-ups have recorded higher numbers. Last year, Xpeng, Nio and Li Auto each made more than 90,000 annual deliveries. Tesla has a large market share, making a total of 936,172 deliveries in 2021.

The lockdown measures in China have greatly affected the production of electric vehicles. With the emergence of the omicron variant, several analysts are questioning the influence the control policies will have on the sector. An official from the Ministry of Industry and Information Technology said that the lockdown would lead to a downward push on industrial production in the first quarter of 2022.

Shen outlined to CNBC the disruptions his company has experienced as a result of the containment measures. For example, his company stopped receiving chip deliveries from Bosch China after a Malaysian chip manufacturer experienced production problems. This was a similar occurrence with their battery cell supplier based in Nanjing after cases of COVID-19 were reported in the area. Two other suppliers based in the Shangyu district of Shaoxing faced similar disruptions.

Another  problem carmakers are experiencing is a chip shortage, which has led to production cuts. This shortage of semiconductors is a result of geopolitical strains and an overwhelming demand of chips. After talking with his company’s chip suppliers, however, Shen is confident that conditions will improve in the second half of this year.

One key challenge also mentioned was the increasing costs of raw materials used for batteries.

S&P Global Platts provided an assessment for battery-grade lithium carbonates stating that its yearly prices increased by 531%. Shen said that supply chain issues had a larger effect on the company’s 2021 performance more than actual consumer interest.

The COVID-19-related restrictions have exposed the blind spots of the Japanese model of lean manufacturing. The strategy had earlier been adopted by companies to save on costs by only purchasing the parts that are needed. With its reassessment, WM Motors is looking to increase prices in order to manage the rising costs.

It remains to be seen how other players in the electric vehicle sector, including Rivian Automotive Inc. (NASDAQ: RIVN), will cope with the mounting challenges facing the industry.

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