exp GPS 0821 China economic slowdown heat wave_00022410.png
On GPS: China's economy falls back to earth
07:34 - Source: CNN
Hong Kong CNN Business  — 

China’s brutal heatwave is now hurting major players in the auto industry.

The rationing of power in Sichuan province — China’s most important hydropower hub — has hit production for major carmakers in Shanghai, including Tesla (TSLA), according to reports in Chinese state media.

Sichuan ordered most factories to close for six days through Saturday because of extreme heat and drought that have caused a power crunch. The shutdown has since been extended by another five days.

SAIC Motor — China’s largest automaker — and Tesla have informed the Shanghai city government that the energy crunch in Sichuan has disrupted supply chains and impacted production at their factories in the city, according to the reports.

Shanghai, which is some 1,200 miles from Sichuan province, is home to Tesla’s “Gigafactory,” which has already built one million cars for the American EV firm.

SAIC has three major factories in Shanghai, including two joint ventures with Volkswagen (VLKAF) and General Motors (GM).

Last week, the companies asked the Shanghai government to help their suppliers in Sichuan, which have been affected by power rationing.

According to official documents quoted by Chinese state media, 16 auto suppliers in the region were unable to manufacture sufficient parts last week because of the power cuts. Shanghai’s economic planning agency has asked Sichuan to increase power supply to these companies, including Chengdu Yinli Auto Parts.

“SAIC and Tesla are the leading companies in Shanghai to build a world-class automotive industry center, and have established important supply partnerships with many auto parts companies in Sichuan province,” the Shanghai government told Sichuan authorities, according to the documents cited by Caixin.

People visit the Taikoo Li shopping complex as lights are partially turned off to conserve energy on August 18, 2022 in Chengdu, Sichuan Province of China.

CNN Business has contacted the Shanghai government and the two automakers for comments, but has yet to receive a response.

China is facing its worst heat wave since 1961, with temperatures crossing 40 degrees Celsius (104 degrees Fahrenheit) in more than 200 cities. The weather has caused the country’s crucial Yangtze River to shrink and led to drought in more than 70 cities.

The extreme heat and drought have caused a spike in demand for air conditioning and a slump in hydropower supplies, placing strain on the electricity grid.

Sichuan, which is a hub for makers of semiconductors, lithium batteries, and auto parts, shut down most factories in the province last Monday. The local government said the move was to ensure enough power for residents.

The province extended the power cut by another five days on Saturday, as high temperatures lingered around 40 degrees Celsius, while scant rainfall persisted. The power rationing has already impacted major international companies.

Japanese automaker Toyota (TM), which has a factory in Chengdu city, suspended operations at the plant last week, according to Reuters. The company did not immediately respond to a request for comment.

Apple (AAPL) supplier Foxconn’s factory in Sichuan has also been affected, although the company said the impact is “not significant.” BOE Technology, a major manufacturer of LCD and OLED panels, also said last week it had to make “production adjustments” in Sichuan in response to the power cuts.

Shanghai’s request for special treatment for its carmakers has triggered a backlash on Chinese social media, with many internet users describing it as “inappropriate” and “shameless” at a time when tens of thousands of people in Sichuan are without power.

Automakers in China, including Tesla, had just begun recovering from a months-long lockdown in Shanghai earlier this year that had hit its production and suppliers. Car sales saw a steep decline in April, with Tesla’s sales diving as much as 98% that month.

— CNN’s Beijing bureau contributed to this report.