Tesla sees delays; Apple, McDonald’s close stores: Virus impact

Tesla Inc. is expecting a production delay in China; McDonald’s Corp. and Starbucks Corp. closed thousands of stores combined in the country; Apple Inc. is preparing for supply-chain disruptions and Deutsche Lufthansa AG halted all flights to and from the mainland.

Global corporations are grappling with a rapidly spreading SARS-like coronavirus that has killed at least 170 people and is threatening a key growth market.

Wuhan, the epicenter of the coronavirus that has infected more than 7,000 people, is a manufacturing, shipping and business hub. While supply-chain disruptions have been limited so far because many facilities already were idle for the Lunar New Year holiday, that may change as employers stay shut longer than normal. Local officials, including the municipal government in Shanghai, are extending the holiday until Feb. 9 or 10 in various parts of the country.

The reopening of some Apple suppliers following the Lunar New Year’s break was pushed to Feb. 10 from the end of January, Chief Executive Officer Tim Cook said. Toyota on Wednesday suspended operations in its China plants through Feb. 9.

Here is a summary of how some of the biggest companies are responding to the health crisis:

Business Impact

• McDonald’s has closed several hundred restaurants in Hubei province, whose capital is Wuhan. The fast-food chain still has about 3,000 locations open in the country, executives said during a Jan. 29 call with analysts. China accounts for about 9% of the Chicago-based company’s global restaurants but makes up just 3% of operating income.
• Tesla expects a one- to one-and-a-half-week delay in the production ramp-up at its new Shanghai plant—its first outside the U.S.—due to a government required shutdown. Chief Financial Officer Zach Kirkhorn said Jan. 29 the delay “may slightly impact profitability for the quarter” and Tesla is monitoring whether there will be supply-chain interruptions for cars built in California.
• Apple provided a wider-than-usual forecast range for the current quarter because of the uncertainty surrounding the coronavirus. CEO Cook addressed the virus during a conference call with analysts on Jan. 28, saying Apple is following developments. Virtually all iPhones are made by Foxconn’s Hon Hai Precision Industry Co. in Zhengzhou, China, and by Pegatron Corp. at an assembly site near Shanghai. Apple also closed some stores.
• Starbucks has closed more than half of its coffee shops in mainland China—about 2,000 of them. The company maintained its 2020 forecast but said it doesn’t include the impact of closing half of the mainland stores because it can’t yet calculate it. Compared with McDonald’s and Domino’s Pizza Inc., Starbucks is the most exposed to the outbreak, as measured by percentage of worldwide revenue and operating income, according to Guggenheim analyst Matthew DiFrisco.
• Robert Bosch GmbH CEO Volkmar Denner said the two factories the world’s largest car-parts maker operates in Wuhan are currently idle because of the Chinese New Year. The German manufacturer employs 800 people at the sites that make steering components and thermal systems. “We’re monitoring how the situation develops to see if production might be down for longer,” Denner told reporters on Jan. 28 in Stuttgart, Germany. “We’re concerned.” Denner said it might take until February or even March before the virus peaks.
• Toyota Motor Corp. is halting production in China through at least Feb. 9, as are General Motors Co. and Ford Motor Co. Ford also has ceased all China-related business travel into and out of the country. Ford employees who traveled to Wuhan and other affected areas are being asked to self-quarantine for 14 days upon their return.
• LVMH, the world’s largest luxury-goods maker, signaled it expects the crisis may already start easing near the end of the first quarter. Chairman Bernard Arnault said that information from his advisers suggests that the peak should be reached over the coming weeks and the crisis may be partially resolved by the end of March. He cautioned that that outlook may be inaccurate.
• The world’s biggest glovemaker, Top Glove Corp Bhd., expects sales of that product to increase about 25% due to coronavirus outbreak, from its initial full-year target of 10%-15%, Executive Chairman Lim Wee Chai said in emailed response to questions.
• Tesla, NIO Inc.: About 8 million cars were sold last year in the roughly 40 Chinese cities that have 10 or more diagnosed coronavirus cases, or 36.8% of total retail volumes in the country, Bernstein analysts estimate. Those cities accounted for 82.5% of Tesla’s retail volumes, and 68% of NIO’s, the analysts wrote in a note. “The latter looks especially vulnerable to a prolonged slump in EV sales,” they said.
• Imax Corp., the Mississauga, Ontario-based company, known for its large-format screen technology, has said it’s delaying movie releases at its theaters in China in the wake of the outbreak. The impact of lost revenue from the Chinese New Year will cost Imax at least $60 million in global box office sales, according to MKM Partners. If the epidemic lasts for a few more weeks, “it is not unreasonable to project” a shortfall of $200 million in the first quarter, MKM Partners analysts said in a note.
• Aeon Co., Japan’s largest supermarket operator, expects sales from Wuhan area stores to drop by half, spokesman Makoto Sueyoshi said Monday. Aeon shuttered the three malls it operates in Wuhan, but its five general supermarkets were operating on a limited basis to sell daily goods and food.

Travel, Work From Home

• Airlines across the globe suspended more flights to China as governments clamped down on travel to help contain the virus. British Airways halted daily routes to Beijing and Shanghai from London’s Heathrow airport, after U.K. officials advised against non-essential travel. The U.K. flag carrier said it would reassess over the next few days.
• Hong Kong’s Cathay Pacific Airways Ltd. said it would cut capacity to China by 50% or more starting Jan. 30 while Lufthansa suspended service to China until Feb. 9. In the U.S., American Airlines Group Inc. is suspending flights between Los Angeles and Shanghai and Beijing from Feb. 9 through March 27, while United Airlines Holdings Inc. is reducing service to Beijing, Shanghai and Hong Kong.
• Hormel Foods Corp., the U.S. maker of Spam canned meat and Skippy peanut butter, asked China-based staff to work from home until Feb. 10. For now there are no production disruptions because the China sites are closed for the holiday until Feb. 3, the company said Jan. 29 by email.
• Cargill Inc., America’s biggest privately owned company and top agricultural commodities trader, asked employees in its Chinese offices to work from home from Feb. 3 to Feb. 9.
• Volkswagen AG is asking about 3,500 employees in Beijing to work from home for two weeks, starting the first day following the city’s Chinese New Year Holiday, from Feb. 3 to Feb. 17.
• Nvidia Corp., the biggest maker of computer graphics chips, told its workers in China to stay home and any others returning from the country to work from home for two weeks, people with knowledge of the matter said. Travel to China should be postponed, Nvidia told employees. Facebook Inc. has also implemented similar policies.
• UBS Group AG and Goldman Sachs Group Inc. are among financial firms that have imposed travel restrictions to the mainland. HSBC Holdings Plc suspended business travel to Hong Kong until Feb. 11. Some including Standard Chartered Plc are providing staff with face masks and hand sanitizers, along with guidance on hygiene and how to avoid getting sick.
• PricewaterhouseCoopers LLP: The accounting firm has suspended all business travel to Wuhan and employees returning from the city are required to work at home for two weeks before coming to the office. The company extended Chinese New Year holidays for staff in Hong Kong and Macau to Jan. 31 and asked employees to work remotely where feasible following the holiday.

Closing Locations

• Yum China Holdings Inc. temporarily closed most of its KFC and Pizza Hut stores in Hubei province until further notice.
• Fast Retailing Co.: The operator of the Uniqlo casual clothing chain has temporarily shut 130 of its China stores, a spokeswoman said. That’s equal to about a fifth of its mainland locations.
• Ryohin Keikaku Co.: Owner of the Muji clothing and housewares brand has closed some stores in Wuhan, according to a spokesman.

Wuhan, the epicenter, has more than 500 factories and other facilities, placing it 13th among 2,000 Chinese cities in Bloomberg’s supply chain database. It’s the capital of Hubei province, which has 1,016 facilities, making it seventh of 32 such jurisdictions. Many plants are in the auto and transportation industries.