Shanghai lockdowns to ease, but tech supply chain woes will likely continue

Shanghai's strict COVID-19 restrictions on movement will ease tomorrow, but that doesn't spell the end for the tech industry's supply chain issues.
Written by Liam Tung, Contributing Writer

Shanghai will ease COVID restrictions on 1 June.

Image: Microsoft

China's commercial capital, Shanghai, will this week ease pandemic restrictions that have hampered production at key suppliers of US tech giants.

The city's municipal government announced that residents in areas deemed low risk will be free to move within the city, use public transport and drive on roads from midnight on June 1.

Tesla, Apple and Cisco are among US firms that have been caught out by China's COVID-19 restrictions under its controversial zero-COVID policy. 

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In April, Tesla shut down production at its Shanghai Gigafactory to comply with city restrictions, which commenced for some areas in March and became a city-wide lockdown in April as infections rose.

Reuters sources reported this week that Tesla's weekly output is around 70% of pre-lockdown production levels. The Gigafactory 3 was shut for 22 days before reopening on April 19. Tesla had only produced 10,757 vehicles by the end of April and sold just 1,512 of them – down 98% from the 65,815 Tesla vehicles sold in in China in March, according to data from the China Passenger Car Association.   

Key Apple suppliers Pegatron, Quanta and Compal Electronics – which respectively assemble iPhones, MacBooks and iPads – were among other local plants affected by Shanghai's city-wide restrictions.

But the reopening of Shanghai on Wednesday doesn't mean the tech industry's supply chain woes are over.

Despite Shanghai's planned reopening, Cisco earlier this month forecast soft earnings next quarter because of congestion it expects in shipping ports and airports, affecting both exports from China and imports of raw materials to China.

Apple in April predicted its Q3 FY2022 sales will be down by as much as $8 billion due to supply constraints in China. Production of the iPhone 14, which would normally be announced in September, has reportedly been knocked off the normal schedule by several weeks due to the restrictions.

There's also a chance that restrictions might return, given China's zero-COVID policy. 

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Some factories, including Tesla's Gigafactory 3 in Shanghai, were able to partially resume production in April using 'closed loop' systems, where workers remain on campus for about a month at a time, with tests carried out on anyone entering or leaving. 

This has upset workers. According to reports from local media, via Business Insider, workers trapped in Quanta's closed loop system in Shanghai clashed with guards over conditions this month. However, these arrangements might remain in place beyond the easing of restrictions for most residents: Bloomberg today reports that Tesla and VW plan to keep workers in their closed loop systems until June 10.

Via The Register, Shanghai city officials on Sunday said that 1,700 "key production-oriented enterprises in the region have resumed work and production".

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