Business daily: Long Shanghai lockdown could be another nightmare for Skoda Auto

The leading Czech carmaker Skoda Auto has been plagued by production problems in recent years. First because of closures during the Covid pandemic, then due to a lack of components because of the war in Ukraine and most recently because of the strict lockdown in Shanghai, which could lead to a fallout in key electronic components from China, the leading Czech business daily Hospodarské noviny reported.

Hit by fallouts in deliveries, Skoda produced almost 28 percent fewer cars in the first quarter of this year, mainly due to a Covid-related shortage of chips and wiring harnesses produced in Ukraine. Now there are fears that a shortage of electronic parts from Shanghai may further worsen its performance.

"There is great concern about the lockdown in Shanghai, where we have a production centre and the Volkswagen Group has a number of plants there. Shanghai supplies us with a number of electronic components and, there is a mounting risk of delivery delays for several parts," Jaroslav Povšík, a member of the company's supervisory board, told the business daily.

Electrical components, air conditioning parts, shock absorbers and brake systems are all imported from China. Although Povšík did not disclose which components are now at stake, he said that the company has already held a crisis meeting on what steps Škoda will take in the event of a crisis. The company has not had to limit production so far, but in case of a prolonged closure, a fallout in key supplies cannot be ruled out.

Shanghai | Photo: Bureau36,  Wikimedia Commons,  CC BY-SA 4.0

After several weeks of restrictions, the Shanghai port is now open, but there is nothing to ship because Shanghai companies have not yet resumed production. With the Chinese government planning a gradual loosening, logistics experts predict that at the end of May the Shanghai port will be heavily congested and a fierce battle will break out between companies over whose goods will leave the port first.

Vojtěch Severýn, spokesman for the Automotive Industry Association, confirms that the closure of Shanghai factories is a problem for the Czech automotive industry. "Although the lockdown in Shanghai may seem distant from the Czech vantage point, it may have strong repercussions. The region is China's centre of car and semiconductor production, and is an important gateway for the Czech and European car industry” he told Hospodarské noviny.

European, Chinese and North American carmakers have all been affected by the lockdown. In April the US carmaker Tesla's Shanghai factory halted production, as did the Shanghai factory of SAIC Volkswagen Automotive, which produces VW, Skoda and Audi cars. The US carmaker General Motors also reported production problems.

Moreover, the full force of the fallout in components has yet to make itself felt, since goods from China usually arrive in Europe 60 days or more after loading. Some parts, loaded before the Shanghai lockdown was announced, have yet to reach clients.

Meanwhile, Jaroslav Povšík says Skoda Auto is unlikely to make up for the drop in production in the first quarter. "We don't dare to make any predictions, because new risks keep appearing, such as the Shanghai lockdown, but also tyre shortages due to the absence of soot produced in Russia or a potential autumn wave of Covid," he told the daily.

In the first quarter of this year, the company delivered roughly the same number of cars to the domestic market as last year (18,500 ), but almost a third fewer (just over 144,000) to foreign markets. The drop is also linked to VW's decision to withdraw from the Russian market due to the war in Ukraine.

Moreover, the carmaker is also slowly withdrawing from China, where its sales have been steadily declining.