China’s Covid lockdown rules send prices higher
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Freeman H. Shen, Founder, Chairman & CEO of WM Motor, speaks during Fireside Chat on Day 2 of CNBC East Tech West at LN Garden Hotel Nansha Guangzhou on November 28, 2018 in Nansha, Guangzhou, China.
Dave Zhong/Getty Images, CNBC International
BEIJING — Covid-related restrictions have increased production costs for Chinese electric car start-up WM Motor, even as existing chip and battery shortages are driving up costs, CEO Freeman Shen told CNBC.
Shen said Wednesday that “all these factors together make this an industry which is fast growing, but it will also be a challenging industry.” Shen is the founder and chairman at WM Motor.
Sales of new energy vehicles — which include battery-only and hybrid-powered cars — more than doubled last year in China, the world’s largest automobile market. China has been a hub for the start-up of electric cars and is a landing pad for traditional car giants who are making the switch to electric.
China quickly imposed swift lockdowns upon cities and communities to control the coronavirus’s spread in 2020. Analysts began to doubt the validity of this variant. whether the costs of the zero-Covid policy now outweigh the benefits.
Factories are already feeling the effects. The Chinese Ministry of Manufacturing said that the factories would experience a reduction in production. drag on industrial production in the first quarter.
Shen explained the effects of Covid-related restrictions upon his start-up.
- Malaysia’s chip producer had manufacturing problems, and stopped delivering goods to Bosch China. WM Motor was then removed from the list.
- China: After Covid cases were revealed in Nanjing (China), one of WM Motor’s supplier battery cells was stopped by the company.
- Similar disruptions have occurred in two other suppliers of the company, both located near Hangzhou, within Shaoxing district.
- Delivery from three other suppliers was also stopped by covid-related restrictions in the Ningbo port region.
Shen stated to CNBC that “all these things were killing”
All automakers have an international reputation. cut production due to a shortage of semiconductors. The shortage in supplies has continued for over a decade due to geopolitical tensions as well as the high demand for chips after the pandemic.
Based on talks with 11 of his chip suppliers, Shen stated that he believes the chip shortage will improve during the second half this year.
Lack of electric car batteries
But he also pointed out another problem that might get even more serious. Rising raw materials costs for batteries.
Battery-grade lithium carbonate prices were up more than 500% year-on-year as of earlier this month, according to S&P Global Platts. The firm’s survey of industry insiders released this week found that 80% of respondents expect those lithium prices to remain high this year — about four times higher than the start of 2021.
Shen stated that the battery shortage could worsen as electric car demand in China increases in the second quarter. Shen said that in 2022 the sales of electric cars will almost double, to approximately 5 million vehicles.
Despite a general decline in passenger vehicle sales over the past few months, there has been an increase in sales of electric cars. China’s consumer spending slumped.
WM Motor announced that the company delivered a quarter-record 15,114 vehicles over the three month period of 2021. That brings cumulative deliveries to 88.686 since the time the start up handed over the first car to a client in 2018.
A Japanese Manufacturing Model: Reassessing
Shen noted that the reason the pandemic disrupted supply chains was because factories used the Japanese tradition of “just in time” or lean manufacturing. This means factories purchase only the parts they need to lower costs and improve efficiency.
However, this strategy is now changing.
He stated, “To make sure that you can deliver your vehicle on time, you will probably think: We need to spend some money to maintain some stock.” For a car company the greatest loss is losing sales to customers.
Shen explained that WM Motor works with property developers to provide test driving sites for their cars in residential neighborhoods. Shen also said they are working to increase the vehicles’ autonomy in such areas as parking.
As others have already done, he stated that the company would have to raise its prices in order to keep up with the rising cost of living.
First, Tesla raised its Model Y price in China from 301,840 yuan in December ($3,300), to 301,088 yuan ($47,000.) After subsidies. WM Motor cars cost about half as much.
Restrictions on travel affect businesses
According to economic experts, China’s Covid-related travel bans have an impact on consumers spending more than the factories.
Covid requirements are frequently changed by cities for travel. Train and flight tickets may be cancelled when Covid cases have been reported.
Shen also stated that WM Motor has been affected by these restrictions. It has factories in Zhejiang Province, Shanghai and Chengdu as well research and development.
To help customers and employees communicate, the company had to adopt more technologies such as virtual reality or augmented reality.
We must use this technology because without it, user experience and efficiency will be horrible. Shen stated that sometimes we are unable to get anything done.
When Shen was asked if he has any plans for an IPO, he replied that there wasn’t news on the front end. He also cited urgent delivery problems.
He said, “Obviously, people had high expectations, and our investor had high expectations. But we’re very busy right now to deliver our product.” We hope to have something soon.
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