SINGAPORE/HANOI — Coronavirus outbreaks tearing through Southeast Asia have triggered a wave of production cuts at automotive suppliers, with the ripple effect shutting down assembly plants far beyond the region.
Swiss chipmaker STMicroelectronics was informed this month that a factory in the southern Malaysian state of Johor would have to suspend operations. More than 200 workers have been infected, according to local authorities. The facility has been halted on and off since July.
Although the factory has resumed operations, the repercussions continue to be felt. Plant activity should have been robust, given the global semiconductor shortage, but the shutdowns have taken a toll on deliveries.
Malaysia has logged more than 20,000 new COVID cases per day. The government imposed its first nationwide lockdown in June. With staffing at automakers and parts factories limited to just 10% of capacity, output in certain states had virtually ground to a halt for an extended period.
The ASEAN region has served as a manufacturing hub for the Japanese automotive industry. It is home to 30% or so of production sites for Japanese auto suppliers, according to the Japan Auto Parts Industries Association — more than any other region.
Southeast Asia’s auto parts industry — valued for its low-cost labor — supplies parts to not only the region, but also Japan, the U.S., China and elsewhere. The recent outbreaks have disrupted those dynamics.
Southeast Asian countries beyond Malaysia are struggling with infections, denting parts production.
Vietnam’s new cases, with Ho Chi Minh City as the epicenter, have topped 10,000 a day. Workers in hot spots must sleep on-site for the plant to remain in operation. The number of factory workers is also being limited to between 30% and 50% of normal levels.
“Utilization rates are declining in proportion to staffing levels,” an official at a Ho Chi Minh City parts maker said.
When factories suspend operations over coronavirus cases, the broader supply chain is affected.
Toyota and other carmakers are moving to pause production in Japan amid the supply chain disruption in Southeast Asia. Japanese automotive suppliers Sumitomo Electric Industries, Yazaki and Furukawa Electric have cable harness factories in Vietnam. The Southeast Asian country surpassed China to become Japan’s top source of cable harness imports in 2014, according to the Japan External Trade Organization. Vietnam accounted for a roughly 40% share in 2020.
The complex task of bundling electrical wires into cable harnesses is done largely by hand, necessitating an army of workers.
But as the coronavirus sweeps through Vietnam, cable harness makers cannot find labor and are forced to cut output.
A fifth of Yazaki’s bases are in Southeast Asia, which accounts for 17% of consolidated sales. Yazaki has two factories in Vietnam, and production appears to have been partly impacted.
At Furukawa Electric’s Vietnamese operation, “factory utilization has declined since July,” according to a company representative.
Koito Manufacturing, a Japanese headlight maker, restarted a Malaysian factory on Tuesday after shutting it down in early June.
But “production going forward is uncertain because factory utilization at automakers is not stable,” a Koito representative said. Such Japanese materials manufacturers as Toray and Mitsubishi Chemical have cut Southeast Asian production of products bound for automobiles.
Japanese automakers are increasingly hard-pressed to procure components. Daihatsu Motor said Friday that it will suspend operations at four Japanese assembly plants for up to 17 days. On top of the global semiconductor shortage, supplies of other components from Malaysia and Vietnam have stalled.
Output will shrink between 30,000 units and 40,000 units between August and September. Production will fall by about 19% to 25% on the year.
Daihatsu parent Toyota Motor will slash September’s global production volume by 40% from its previous target, Nikkei reported Thursday, mainly due to the dearth of auto parts from Southeast Asia. The decision will reduce overseas production by 220,000 vehicles.
Honda Motor this month cut production in Guangzhou in China by 20,000 vehicles — down 20% from the original production plan from late July. In Japan, the carmaker temporarily suspended operations at its Suzuka factory in Mie Prefecture.
Not only did the chip shortage weigh on Honda, but the automaker also must contend with delayed procurement of components from Indonesia and Thailand.
Nissan Motor has shut down an assembly plant in the U.S. state of Tennessee for two weeks over issues procuring semiconductors in Malaysia. The move is forecast to shrink output by tens of thousands of vehicles.
Auto suppliers have built factories in multiple Southeast Asian countries to maintain sustainable shipments across the globe. But the pandemic has upended that strategy.
“In Southeast Asia, there are many cases where complementary supply chains have been created throughout the region,” said Takashi Horii, lead Asia researcher at Fourin, an auto industry intelligence firm headquartered in Nagoya. “If production stops in one country, there is a risk that supplies from that region will be disrupted. COVID restrictions in [Southeast Asian] nations are already becoming country risks.”
Additional reporting by Ryo Asayama in Tokyo and Ryotaro Sato in Osaka.