Ripples From Virus Outbreak Hit Korean Plants

Automakers — and their accountants — are playing the wait-and-see game as the coronavirus outbreak continues to grow in China, throwing the assembly of crucial vehicle components into disarray.

Korean automaker Hyundai has now announced its domestic plants have gone dark, citing supply chain disruptions born of the virus and the aggressive lockdowns enacted to curtail its spread.

As reported by the Financial Times, the Korean manufacturer has had to shut down its assembly plants after its supply of engine wiring harnesses ran dry.

Last week, China extended the Lunar New Year holiday in order to restrict movement, leaving the country’s vast manufacturing heartland idle for an extended period. Many automakers and suppliers, depending on locale, have opted to stay that way, as regional shutdowns of transportation means many workers would not be able to show up.

Hyundai claims it’s on the prowl for a new supplier, adding that the shutdown could end by next week. The move impacts only the production of Hyundai-badged vehicles, it said, not Kia products.

As the virus spreads (more than 20,000 citizens were reported infected as of Monday), automakers anticipate continued disruption. And not just in China proper.

“Restrictions on movement and other measures have raised the risk of disruption to supply chains, and we see potential for a stalling in automobile production within China,” said analysts at Japanese financial services company Nomura. “We also see a risk that supply chain issues could have knock-on effects on production in Japan and elsewhere in Asia.”

Even if production levels are maintained, automakers foresee a hit to their profits in the massive new-car market. Residents under lockdown will not be purchasing new cars. Moving parts production out of China would also weigh on a company’s balance sheet.

The New Year’s surprise comes as automakers across the globe attempt to pivot to electrification amid declining sales in both Western markets and China, incurring no shortage of red ink in the process. Coronavirus is the last thing they need.

“The inescapable fact is that even in our milder scenarios the downside to earnings estimates looks severe,” said analysts at Bernstein.

[Image: Hyundai]