Apple and Tesla Suppliers in China Suspend Production as Country Faces Power Crisis

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China's power crisis has affected the production of Apple suppliers in the country.
China's power crisis has affected the production of Apple suppliers in the country. (Image: real-napster via Pixabay)

A power crisis in China has affected the supply chains of American companies like Tesla and Apple. Many suppliers have suspended factory production in order to comply with Beijing’s policies to restrict energy consumption.

Unimicron Technology, an Apple supplier, shut down three of its factories on Sept. 26 to adhere to the local government’s “electricity limiting policy.” The closure will continue until Sept. 30. The company manufactures printed circuit boards and expects its other plants to make up for the production loss.

Concraft Holding, which supplies speaker components used in Apple iPhones, was forced to suspend production for five days at its manufacturing plants in Suzhou city. The company said that it would meet existing demand with its inventories.

Eson Precision Engineering shut down production at its manufacturing facilities located in Kunshan city until Oct. 1. Eson is the biggest iPhone assembler in the world and also supplies Tesla. “The company will leverage its inventory to maintain the operation while production is halted… We expect to arrange production on the weekends or in the upcoming holidays [next month] to meet customers’ needs,” Eson said in a filing with the Taiwan stock exchange.

The power crunch comes at a time when manufacturers are under pressure to meet orders. According to Gu Wenjun, chief analyst at Chinese semiconductor and electronics market research firm ICwise, the looming power crisis could affect the sales of new products launched by Apple, Xiaomi, and Huawei.

This is a busy season for semiconductor companies that produce chips critical to electronic products. Given that there is already a chip shortage globally, the power crunch can only make matters worse.

In a report, Gu pointed out that several semiconductor manufacturers in the country have already lost access to power, which will have a “strong impact” on the industry. Unlike other industries, the semiconductor industry “cannot be switched on or off at a moment’s notice,” he warned.

“The damage [caused by the country’s power-rationing measures] could get worse because the end of the year is the peak season for electronics… China is the manufacturing center for smartphones,” Gu wrote in a report.

According to Jeff Pu, a Haitong International analyst, China’s power restrictions and subsequent reduction in production will cause export prices to rise. This will increase U.S. inflation as the country heads into the holiday season, and possibly also create uncertainty regarding the demand for tech products. Pu feels that the power crunch will force the supply tightness in the semiconductor industry to “last longer.”

Power crisis

One of the main reasons for China’s power crisis is its pursuit of climate goals. Last year, Chinese leader Xi Jinping declared at the United Nations that China would cut down carbon emissions per unit of GDP, also known as carbon intensity, by over 65 percent of 2005 levels by 2030. This year, Beijing is targeting an energy intensity drop of three percent.

According to China’s National Development and Reform Commission (NDRC), just 10 of the 30 mainland regions in the country succeeded in meeting their energy reduction targets in the first half of the year. The country’s power generation through August is actually up by 10.1 percent compared to the same period last year.

Meanwhile, coal supplies are also contributing to the problem. Beijing has restricted coal imports from Australia due to trade and political disputes. The Chinese regime also amped up safety measures in local coal mines following a series of accidents, which has slowed down domestic coal production. As a result, the country is experiencing a coal shortage.

“If the power shortages were only due to coal shortages, they could be possibly resolved in one or two months… But Beijing is unlikely to substantially soften its green policy measures until spring next year after China hosts the 2022 Winter Olympics,” Wang Lisheng, an economist at Nomura, said to Fortune.

China’s construction and manufacturing sectors have boosted their activities following a pandemic slump. However, these industries require large amounts of power to keep running, which results in more coal and carbon emissions. The country’s carbon emissions spiked to record highs during the first quarter of the year.

“The economy is much more driven by the industrial sector than the consumption sector… Unfortunately, the energy intensity in the industry sector is much higher than that in the consumption sector,” Macquarie economist Larry Hu wrote in a research note.

Meanwhile, Wang points out that the pent-up demand from the closure of the Ningbo port could temporarily offset the supply shock created by the power crisis. Ningbo, a coastal city south of Shanghai, had shut down a terminal in August after a Coronavirus Disease 2019 (COVID-19) outbreak. Ningbo is the third busiest port in the world.

  • Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.