Japanese Auto Industry Faces New Factory Expansion Delays Due to COVID-19... Clouding Earnings Recovery

[Image source=AP Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The spread of the novel coronavirus infection (COVID-19) has caused disruptions in the expansion of new factories in the Japanese automobile industry. The operation of Toyota and Mazda's factories in the United States has been delayed by several months, and Suzuki's factory in India is also considering a shutdown. On the 21st, Nihon Keizai Shimbun reported that the economic downturn caused by COVID-19 is prompting a reevaluation of investment plans in the Japanese automobile industry.

According to the report, the new factory jointly built by Toyota and Mazda in Alabama, southern United States, is expected to be delayed by several months compared to the original plan. In early April, both companies stated that the installation of equipment was delayed due to the impact of COVID-19, causing construction delays. Initially, both companies expected to start operations in early 2021, but now it is projected to be delayed until the latter half of 2021.

In 2017, Toyota and Mazda signed a contract to invest $1.6 billion to build a new SUV production plant in Alabama, USA, aiming for an annual production of 300,000 units. The two companies planned to rebound with SUVs, which are popular models in the US market, but the economic downturn caused by COVID-19 has led to a decrease in vehicle demand and a red light for performance recovery in the North American region.

Suzuki was constructing its third factory in Gujarat state, western India, but due to the impact of COVID-19, the start of operations was postponed from April to July this year. As a result, even if the spread of COVID-19 subsides, the recovery of new car demand remains uncertain. Accordingly, Suzuki is reportedly considering further postponement of the start of operations or even suspending factory operations.

Nissan Motor also planned to establish a new factory in Wuhan, China, this year to produce new electric vehicles, but construction has been delayed due to the city lockdown caused by COVID-19.

According to research firm IHS Markit, the average operating rate of automobile factories worldwide in 2019 was 63%, the lowest level since 2009 (62%) when demand sharply declined after the financial crisis. Nevertheless, major automobile companies have been expanding production capacity to recover performance by expanding markets. However, with sales shrinking due to the global economic slowdown caused by the US-China trade dispute, the COVID-19 outbreak has further pushed the automobile industry into crisis.

IHS Markit forecasted that new car demand would significantly drop this year but would recover starting in 2021; however, the economic downturn caused by COVID-19 has made even this uncertain.

Nihon Keizai Shimbun reported that if automobile companies do not hasten to review their future investment plans, excess production facilities and workforce could become a burden on management conditions.

This content was produced with the assistance of AI translation services.