China plants open again; bumps still expected
TORONTO Most of Magna International Inc.’s plants in China are back up and running as the country seems to be getting a handle on the coronavirus outbreak, but chief executive Don Walker said the auto-parts supplier expects bumps as production resumes.
Despite the spread of the virus across Asia and to Europe, there have not yet been any impacts to the Aurora, Ont.-based auto-parts supplier’s business outside of China, Walker told reporters on Thursday at an investor event in Toronto, where Magna implemented a “no handshake policy” for health reasons.
Magna had 54 factories and 18,750 employees in China at the end of 2019. Aside from a couple plants in Wuhan where the disease originated, most of Magna’s factories have resumed operations, although only at between 50 to 80 per cent of capacity as they await orders from the automakers.
“It looks like it’s not getting any worse,” Walker said, adding that most of Magna’s suppliers and the car manufacturers have resumed production as well.
“They’re having trouble getting enough people in, so I’m sure there will be interruptions still in production, but at least it is starting,” he said.
Five Magna employees in China were infected with coronavirus, Walker said, adding the four are healthy again and one is getting better.
It’s too early to quantify COVID-19’S impact on Magna’s global supply chain, executives said, as it’s not clear how long production will take to normalize or whether other countries will face similar shutdowns.
But stock markets continued a six-day losing streak on Thursday as investors remained spooked by the outbreak’s potential to wreak havoc on global supply chains. Magna’s stock has fallen about 14 per cent since the start of the year.
While Walker expects short-term investors to react to such events, he said longer-term investors will take a wider look at vehicle sales, and whether the pause in travel will result in pent-up demand in two or three months.
“Most of these things are overreactions, but that’s kind of the way the market works,” Walker said. “We’ll just have to wait and see how fast everything gets back to normal.”
No matter the speed, the shutdown will have an impact on Magna’s sales in China, where its quarterly revenue is about $400 million to $500 million, chief financial officer Vince Galifi said in a presentation.
Sales in China account for less than five per cent of Magna’s annual revenue, which is expected to be between $38 billion and $40 billion in 2020.