COVID-19 Delta Variant Ravages Automotive Supply Chains and Beyond
Although the automotive industry has both introduced exciting new technologies and made several bold plans to fully embrace a new, net-zero carbon emissions model, 2021 has proven to be an incredibly difficult year. These difficulties have only been amplified by the emergence of the COVID-19 Delta variant, which has called into question the ability of automotive supply chains to recover within the next year.
The automotive supply chain in Asia has been particularly affected. According to reports, Honda, Toyota, and Suzuki have all been forced to shut down production in China. Honda’s three factories in Wuhan, China have closed indefinitely, while Toyota was forced to shut down three assembly lines in China for several days due to a COVID-related disruption in Vietnam. In total, it is estimated that that industry will shrink by at least $20 billion in annual profits due to stagnant sales and the ongoing semiconductor shortage.
The disruptions to automotive supply chains have not been limited to Asia, either. In May alone, General Motors reduced their production by approximately 278,000 vehicles, while Ford was forced to halve their production throughout the entire second quarter. In the U.K., Stellantis temporarily suspended factory production as a resulting of large numbers of works isolating to halt the spread of the virus, Reuters reports.
Meanwhile, concerns regarding inflation have clouded any outlooks for a speedy recovery. “The impact of the delta variant on growth and inﬂation is proving to be somewhat larger than we expected,” said Goldman economists including in a note to clients. “The delta variant and other disruptions are also likely to further raise prices of supply-constrained durable goods through year-end.”
The White House itself expressed a similar dour tone. “We haven’t seen to date a direct impact on the economy from Delta, but we anticipate supply chain impacts,” said White House spokeswoman Jen Psaki. Most reports do not see any recovery probable until beyond 2022, at least.
The automotive industry, as well as virtually all major industries, is now in a position where risk mitigation strategies must be considered in regards to their supply chain. Just-in-time inventory procurement models in particular must be reconsidered in favor of strategies that not only ensure short-term production continuation but also long-term continuation, regardless of the disruption or unexpected challenge. The COVID-19 delta variant is a perfect example of such an unexpected challenge, and more are sure to come.