Coronavirus Ripple Effects Hit Production at Airbus, Hyundai

Date: Thursday, February 6, 2020
Source: The Wall Street Journal

Ericsson, Siemens are among other global giants taking steps in response to the epidemic

Airbus EADSY -0.68% SE shut down a factory in China that accounts for almost 10% of the production of its most popular jet, as precautions taken to contain the coronavirus outbreak ricochet across global industries.

Hyundai Motor Co. said this week it was idling all seven of its plants in South Korea because of a lack of parts from suppliers in China. It was the first big auto maker to shut down production outside of China because of supply-line bottlenecks resulting from widespread factory outages and strict limits on worker movements in the country.

Tesla Inc., meanwhile, warned of delivery delays in China. Tao Lin, a vice president for the electric-car maker, posted on chat service Weibo on Tuesday that deliveries set for early February would be affected. Tesla’s new factory in Shanghai has been closed due to the outbreak.

Many multinational companies have suspended production, closed offices and shut retail outlets in China. In many cases, they have extended shutdowns scheduled for the Lunar New Year. To slow the spread of the deadly coronavirus, the Chinese government has ordered most big plants to stay closed until Feb. 10. Airbus, which had closed its factory for the holiday, said Wednesday it would extend the suspension indefinitely, pending further guidance from Beijing.

The list of companies suffering from stoppages in China includes major foreign auto makers as well as technology giants such as Apple Inc. and the biggest assembler of its devices, Foxconn Technologies Co. For the current quarter, analysts expect Apple to ship between 5% and 10% fewer iPhones than was projected prior to the outbreak.

Other companies are bracing for supply-line shocks. Industrial giant Siemens AG set up a crisis team to help navigate obstacles resulting from the epidemic. Chief Executive Joe Kaeser told reporters Wednesday that the team was monitoring potential bottlenecks in the German company’s supply chain. So far, Siemens hasn’t encountered problems purchasing components, and Mr. Kaeser said the crisis team was to “make sure it stayed that way.”

China is also one of Siemens’s largest markets, accounting for roughly 10% of the group’s total sales. Almost all of its products sold in China—from medical equipment to factory automation—are at least partially produced there, a Siemens spokesman said.

Hiroki Totoki, Sony Corp.’s chief financial officer, said the disruptions in China could impact the supply chain for the Japanese company’s image-sensor business, its most-profitable segment this fiscal year. “We are going to move forward with business while carefully monitoring the condition of the virus,” he told reporters earlier this week.

Airbus, the world’s largest jet maker by deliveries, said that domestic and international travel restrictions were hampering operations at its factory in Tianjin, China. The plant manufactures Airbus’s bestselling A320neo narrow body, the rival to Boeing Co. ’s 737 MAX. The factory currently produces about six jets a month; Airbus makes just over 60 of the aircraft a month globally.

The plant’s closure is likely to cause some delivery delays for Asian carriers. If extended, it could affect cash flow at the plane maker, since customers typically pay for planes on delivery.

“Airbus is constantly evaluating the situation and monitoring any potential knock-on effects to production and deliveries and will try to mitigate via alternative plans where necessary,” the company said.

Airbus also has a smaller facility in China that applies finishing touches on A330 wide-body jetliners for local customers. It said last year it was expanding that facility to accommodate A350 jets and the handful of those bigger jets that it delivers each year.

Telecom-equipment maker Ericsson AB said it has suspended production in China. A spokesman said the Swedish company has 11,000 employees in China and 450 in Wuhan, the epicenter of the coronavirus outbreak. Ericsson has 99,000 employees globally.

“We have a global supply chain, and [while] China is a big market, we have manufacturing in other countries as well,” the spokesman said. The company had a flexible supply chain and its level of manufacturing in China varies year over year, he said.

 

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