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 autoparts 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 autoparts 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 of 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 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 four are healthy again and one is improving.
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. Magna plans to update its financial outlook for the year, including the impact from coronavirus, when it reports its first-quarter results in May.
Galifi expects the Chinese government may offer incentives to get the economy rolling again.
“That should help our industry to recover,” he told reporters.
The headlines where youre blocking trains it does kind of send a message to the outside people that Canadas probably not the best place to invest
Don Walker, CEO, Magna International
Walker also addressed supply chain issues closer to home, given the blockades that have disrupted Canadian railroads for the past three weeks. While the rail stoppages haven’t affected Magna’s business – it can move parts by truck if needed – he said protests that risk peoples’ safety hurt Canada’s long-term prospects and don’t present solutions.
“What’s happening, I’ve said it before, I think it’s insane,” he said. “All we’re going to do is damage our long-term prosperity.”
He called for better dialogue on global trade, global warming and Canada’s financial situation.
Magna, which employs 165,000 people around the world including 20,000 in Canada, will have invested $1 billion in Canadian plants between 2017 and the end of 2020.
“We still see it as a good place to do business,” Walker said. “I do think that the headlines where you’re blocking trains … it does kind of send a message to the outside people that Canada’s probably not the best place to invest.”
Walker also called on the federal government to pass the new NAFTA soon. The new deal’s requirement for more auto parts to come from North America will be good for Magna and will outweigh any higher costs associated with production, he said.
Magna’s plans for future investments include a big push toward electrification, predominantly by building parts for hybrid-powered vehicles, which are expected to become more popular over the next decade as big automakers invest heavily in electric power.
Electric vehicles are expected to have higher penetration in China and Europe as well, due to stricter air quality and carbon emissions regulations that will change what automakers build. North American customers haven’t been as keen to adopt electric vehicles due to higher price tags and a lack of charging infrastructure, which is also expensive. If Canada decides to adopt vehicle standards, Walker said the rules should be the same as the U.S. to avoid ballooning production costs.