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COVID flare-up to weigh on China EV sales in Q1 2023, report says

China’s nascent re-opening may take a bite out of the country’s all-important auto sector.

The South China Morning Post (SCMP) reports that a flare-up in COVID-19 cases will hit China’s EV industry, resulting in a loss of 600,000 sales in the first quarter of next year. Citing data from the partially government-owned China International Capital Corporation (CICC), the report finds that the rise in cases will create disrupted production and reduced demand.

This all comes as China exits its zero-COVID strategy and enters the new year. The CICC report suggests that in Q1 OF next year, EV industry output will total 1.5 million deliveries, which would be a 40% decline from Q4, where the industry is expected to deliver 2.1 million vehicles.

“The supply and demand sides of the industry will both be impacted by the pandemic,” CICC analysts wrote per the SCMP. “The number of visits by shoppers to their showrooms will also turn out to be lower [than in previous months].”

China’s auto sector, which is responsible for 1 out of every 6 jobs in China’s labor force, is already feeling some effects of rising Covid cases as the country loosens restrictions. Tesla’s Giga Shanghai reportedly extended its Christmas break by day, with reports suggesting workers at Tesla and its suppliers were getting sick among the recent uptick in Covid cases.

HUAI'AN, CHINA - DECEMBER 14, 2022 - A BYD new energy vehicle sales shop in Huai 'an city, Jiangsu province, China, Dec 14, 2022. (Photo credit should read CFOTO/Future Publishing via Getty Images)
HUAI'AN, CHINA - DECEMBER 14, 2022 - A BYD new energy vehicle sales shop in Huai 'an city, Jiangsu province, China, Dec 14, 2022. (Photo credit should read CFOTO/Future Publishing via Getty Images) (Future Publishing via Getty Images)

All is not lost for China’s auto sector for 2023, however. The CICC report finds that by Q2, China based automakers will benefit from the government’s exit from the zero-COVID policy. CICC said automakers like BYD, Tesla, Nio and Li Auto had secured large future orders, and sales could recover as soon as the pandemic weakens.

While a Q2 recovery is welcome news for the auto industry, not all analysts feel that way. It may take into the second half of next year to see if China is experiencing an economic recovery.

“The first two quarters of next year are also going to be critical because they're going to help us understand just how long the Chinese economy needs to fully rebound,” said China Beige Book’s Shehzad Qazi in an interview with Yahoo Finance.

“We are in a pretty deep hole right now, especially when you look at the property market, it is struggling,” he said. “By all accounts, the Chinese economy is very, very weak; this is not an overnight recovery story.”

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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