English Translation (Automotive industry news style, consistent terminology, matching Gasgoo editorial standards)

As the COVID-19 pandemic worsens overseas, a large number of multinational auto component suppliers have announced partial or full production suspensions across Europe and the United States since March. This even applies to established giants with mature supply systems such as Bosch, Continental and ZF. Against this backdrop, overseas institutions have recently turned their attention back to the Chinese market. Yet amid the widespread downturn across the global automotive industry, how much relief can Chinese auto parts manufacturers expect?

On January 28, Webasto announced the closure of its headquarters near Munich for two weeks after an employee tested positive for COVID-19. Webasto became the first multinational automotive component firm to shut overseas premises due to the pandemic.

Earlier, the epidemic was concentrated in China, forcing domestic enterprises — including local auto parts makers and Chinese subsidiaries of multinationals — to halt production. Many hoped that as the domestic outbreak was gradually brought under control, China’s automotive supply chain would resume normal operations. Unexpectedly, as domestic conditions improved and factories gradually restarted work in March, the pandemic escalated sharply abroad, triggering broader production shutdowns and supply disruptions.

Thyssenkrupp, for instance, suspended operations at its Indiana plant in the United States starting March 23. The group stated it would adjust output for its steel business amid the outbreak. In addition, Tata Steel and other companies have taken measures in response to falling orders, staff shortages and virus prevention requirements. Its competitor Liberty House went further by temporarily closing several smaller facilities. ArcelorMittal, one of the world’s largest steel producers, has cut output at most of its continental European plants and warned that the pandemic could place “immense pressure” on European steelmakers.

Bosch began drastically scaling back operations in Germany on March 25. The move affects 35 production sites under Bosch’s Mobility Solutions division as well as several administrative offices in Germany. Back in early February, when the epidemic first hit China, the global automotive components leader warned that “if the situation continues, Bosch’s global supply chain will face disruption.” The prediction has unfortunately come true, even though the latest round of shutdowns has no direct link to China.

Continental also confirmed production halts at its factories, without specifying locations or timelines. ZF plans to slow or suspend manufacturing in Germany and has requested government aid to continue paying staff during the crisis. Webasto likewise revealed it is considering applying for relief support, while Marelli announced production suspensions at most of its European plants.

Just over ten days earlier, Bosch, Continental, Valeo, ZF, Webasto, Autoliv and others had maintained that their factories would remain operational unless automakers cut orders amid weaker demand or governments introduced new regulations to curb virus transmission. Continental even commented that “temporary plant closures are a measure of last resort, only to be implemented under extreme circumstances and upon official requirements.”

Within a matter of days, all these major component giants revised their production schedules. Worse still, rampant overseas spread of the virus has delayed staff return, disrupted domestic and international logistics and undermined material supply stability, leading to widespread production standstills at global vehicle manufacturers. Statistics show that automakers have announced or planned closures of more than one hundred factories worldwide. If the trend continues, more enterprises may face shutdown crises, with spillover effects reaching the Chinese market.

Will Chinese auto parts suppliers suffer a second shock?

It is well known that vehicle manufacturing involves tens of thousands of components relying on global material sourcing. Disruptions at any link can ripple through the supply chain, triggering mass supply shortages and disrupting vehicle production schedules — a scenario already witnessed during the height of China’s domestic outbreak. Now that the pandemic epicenter has shifted overseas, will domestic component manufacturers face a second wave of impact?

The outlook suggests this is highly likely. “After some time, we may have to switch suppliers and shorten procurement cycles. Our steel is mainly imported from Italy; each purchase covers around four months of production, so we still have inventory for now. But stock levels are declining, while strict pandemic restrictions in Italy prevent new procurement rounds. Once existing stocks run out, we will have to consider domestic alternatives,” a representative from a Shanghai-based raw material supplier explained. During China’s initial outbreak, the company suffered severe disruptions because some Hubei-origin employees could not return after the holiday, coupled with strict local work-resumption rules in Shanghai. It was even forced to abandon several finalized orders.

This enterprise is just one example amid the global spread of the pandemic. Many component manufacturers already endured an initial round of production suspensions when the outbreak was confined to China, especially firms in Hubei Province. Operations are only now starting to recover, yet many factories remain operating below full capacity.

“Most Tier 2 suppliers in Jiangsu and Zhejiang only recovered around 30% of capacity when they restarted in March,” Yu Junjie, Supply Chain Director at Knorr-Bremse, told Gasgoo in a recent interview. Companies in Hubei, which only gradually resumed production more recently, face an even tougher situation.

Image source: Knorr-Bremse

Having already sustained heavy damage from the domestic epidemic without fully recovering, Chinese suppliers now confront collapsing overseas markets. The prospects for many domestic component manufacturers are clear, especially those reliant on overseas raw material procurement or component exports. They face upstream material shortages on one hand and slumping demand from automakers on the other, risking renewed production shutdowns or being forced to source materials at higher costs.

Fuyao Glass serves as a typical case. It already absorbed heavy blows during China’s outbreak due to delayed staff return and prolonged shutdowns by downstream vehicle manufacturers. Now the overseas pandemic has triggered widespread automaker suspensions and plunging demand. With multiple factories across Europe and North America, Fuyao Glass faces renewed pressure on its performance.

Fuyao Glass is clearly aware of these risks. An investor previously raised a question via the investor interactive platform, asking whether production plans at its U.S. and European plants had been severely disrupted by the pandemic. Fuyao responded: “Production and operations at our U.S. and European facilities remain normal for the time being, yet vehicle factory shutdowns or output cuts will impact our order intake.” Latest updates indicate output at Fuyao’s U.S. plant is already declining.

Laser radar manufacturer Hesai Technology recently disclosed that worsening overseas outbreaks have brought notifications of reduced raw material supply and price hikes of 20% to 50%. Consequently, the firm has adjusted product pricing: starting April 1, 2020, prices for all its laser radar products will rise by 20%. Orders confirmed before April 1 will still be fulfilled at original prices with consistent quality.

Against this backdrop, the notion that “Chinese auto parts firms are presented with new opportunities” may prove overly optimistic.

Half a month ago, Kristin Dziczek, Vice President of the Center for Automotive Research in the United States, commented while analyzing pandemic impacts that “no automaker can emerge unscathed.” This held true then and is even more relevant today. Many domestic enterprises may not yet feel the full force of overseas disruptions thanks to sufficient inventories, yet sustained global spread raises risks of fresh supply interruptions and enforced production cuts in the coming months. The South Korean automotive market offers a telling example: supply chain breakdowns, factory closures, suspended dealership operations and shrinking demand have combined to fuel industry forecasts of cascading bankruptcies among Korean auto parts suppliers within two months, demonstrating the lagged nature of pandemic impacts.

How large are the opportunities for domestic substitution amid the new pandemic landscape?

Although China’s automotive supply chain faces severe challenges, local players have greater room for maneuver compared with European and American multinational component firms located in the pandemic epicenter. For this reason, institutions are refocusing attention on the Chinese market.

On March 19, the Motor & Equipment Manufacturers Association (MEMA) called for emergency relief, tariff reductions and other support from the U.S. government to cope with pressures stemming from the COVID-19 crisis. It sent letters to Democratic and Republican congressional leaders listing a set of requests, topping which was an appeal for the Trump administration to remove tariffs on Chinese goods and imported steel. Amid widespread expectations, how substantial are the opportunities for Chinese auto parts manufacturers to realize domestic substitution?

“Overall, the global spread of the pandemic will push the automotive industry through an extremely difficult phase in the short term. In the medium and long run, production cuts and supply chain disruptions will erode the stability of global automotive supply networks, triggering a temporary shift from a buyer’s market toward a seller’s market. Under this trend, Chinese indigenous component suppliers — particularly those with technological advantages in mid-to-high-end products — stand to gain trial opportunities to supply foreign brands, creating major chances to be incorporated into foreign OEM supplier systems.

The risk of severe supply disruption will be most acute in key component segments marked by high entry barriers, concentrated supply chains, limited vendors and oligopolistic Tier 1 dominance, including automotive electronics, mechatronic integrated assemblies, fuel injection systems, solenoid valves, electronic control units and certain basic raw materials. These segments represent the primary market space for domestic manufacturers to achieve import substitution,” Yu Junjie commented.

A representative from Brembo shared a similar view: with the pandemic active across multiple regions worldwide, automakers and component suppliers would be well-advised to identify potential local Chinese suppliers. While this requires substantial time and resource investment and poses short-term operational hurdles, it is worth pursuing.

The representative further noted that amid global supply chain turmoil, component manufacturers should earnestly advance deep localization to upgrade domestic supply ecosystems and secure new opportunities to boost long-term competitiveness. To achieve this, understanding the future direction of the automotive industry is critical. It enables supply chain participants to collaborate toward shared targets, lift productivity at existing facilities and better plan new business investments. Regarding corporate global and industrial chain layout, he highlighted several focal points: production efficiency, streamlined management, talent development, investment and cash flow management, core technology development, clear definition of core competitiveness, and embracing emerging technologies and trends.

Yu Junjie pointed out that the automotive industry is undergoing profound transformation. Amid harsh market conditions, vehicle manufacturers and component suppliers should prioritize four areas in supply chain management: First, maintain a crisis mindset. China’s auto market has entered an era of stock-based competition; the 10%–20% annual growth seen in past decades is gone. Companies should limit fixed asset investment and fully unlock the potential of existing capacity. Second, strengthen oversight of downstream Tier 2 suppliers and further optimize procurement frameworks. Private enterprises, in particular, need to move away from autocratic management models. Third, market downturns enhance bargaining power for OEMs and Tier 1 purchasers. Leveraging this advantage can substantially reduce procurement costs. Fourth, operationally, the automotive supply chain is likely to go through three phases: disruptions to Chinese firms supplying global customers; disruptions to overseas vendors supplying China; and Chinese component suppliers fulfilling foreign manufacturers’ capacity demands. Accordingly, enterprises should rapidly compile lists of products suitable for domestic sourcing, develop supporting strategies for clients in advance and prepare corresponding support packages. Component suppliers should also make good use of soft sales tactics — such as donating masks — to build rapport with overseas customers.

Notably, many enterprises are already considering implementing the above recommendations. While certain measures may bring limited immediate gains amid widespread global automotive shutdowns, they will help component suppliers strengthen overall capabilities and build robust, sustainable supply chains in the long run.