Sichuan power cuts bring automakers new supply chain crisis

Tesla and Chinese automaker SAIC are turning to the Shanghai government to help with new supply chain disruptions after Sichuan province cut down power supply for six days to cope with severe heatwaves, Chinese media outlets reported on Friday. The southwest province of Sichuan is home to many auto parts makers. 

The power restrictions in Sichuan and Chongqing have also forced Tesla, Nio, and Xpeng to temporarily close multiple charging and swapping stations in the region, Chinese media outlet Jiemian reported, citing feedback from car owners.

Why it matters: Automakers in China were already reeling from an industry-wide chip shortage and surging battery material prices exacerbated by the country’s Covid restrictions and the Russia-Ukraine conflict. The worsening situation in auto parts’ supply chain could force them to scale back further production in the country, a major growth market for electric vehicles.

Details: In a widely circulated letter to Sichuan provincial government, Shanghai authorities asked Sichuan to ensure basic electricity demand to 16 local parts makers. On Monday, the provincial government of Sichuan began rationing electricity supply and asked factories to shut down for six days as unprecedented hot summer weather surged the region’s electricity demand.

• A government representative confirmed the Shanghai authority’s letter to the Chinese financial media outlet Caixin on Thursday. According to the letter, Tesla and SAIC said they are facing challenges in getting enough supply of car components, as some of their suppliers in Sichuan have reduced production due to the power cut. 
• Only one auto supplier, Chengdu Yinli Car Parts, was named in the letter. The supplier makes aluminum wheel and vehicle body components for automakers such as SAIC-GM, a joint venture between the state-owned manufacturer and General Motors.
• State-owned automaker Changan and Seres, a small automaker and partner of Chinese tech giant Huawei, are also being hit by the sudden cut. The two companies have halted production at their facilities in the southwestern municipality of Chongqing, which borders Sichuan.
• On Tuesday, Changchun Engley Automobile, a Shanghai-listed car body panel manufacturer, told investors that its Chengdu factory had received notice of the power cut by Sichuan regulators. According to its website, the company’s clients include Volkswagen, BMW, Nio, and Xpeng Motors.
•  Toyota and Chinese EV battery giant CATL have suspended operations in the province.