Japan quake halts auto and chip plants, testing supply chain resilience

A 7.1-magnitude earthquake in southern Japan has halted car and semiconductor factories, but manufacturers' efforts to strengthen resilience may mitigate disruptions, as seen in a similar quake a decade ago.

The 7.1-magnitude quake that struck southern Japan this week ‌has ​brought many car and semiconductor factories in the area to a halt, but hopes are high that disruptions will be less severe than a similar-sized temblor that rocked the region a decade ago.

Given Japan's proneness to natural disasters, manufacturers have for decades sought to strengthen the resilience of parts supply and this latest quake, which has claimed the lives of 34 people, will ‌be a test of how robust their efforts have been. Aisin, an auto supplier that makes doors, engines and other parts at a factory near the epicentre of Tuesday's jolt, is a case in point, appearing to have suffered less when compared to 2016.

Back then, its plant was severely damaged, causing shortages of a key door component used by Toyota that forced it to halt production at assembly plants nationwide. Aisin CFO Daisuke Kondo told reporters on Friday that earthquake resistance measures introduced at the site since 2016 had helped ‌limit damage despite more intense shaking this time.

The plant had suffered no major structural or equipment damage, though some water pipes were impacted. Kondo said nearly 200 people, including staff from some of its customers, were helping with recovery at ‌the site but gave no timeline for resuming operations. "Once we confirm that safety and quality are okay, we will resume production as appropriate ... this will differ from product to product," he said.

Toyota has suspended production at three factories in the region — one of which makes Lexus luxury models while the other two produce hybrid car units and engines — through to August 5. A separate car assembly plant in Aichi, central Japan, more than 600 km (370 miles) from the disaster site, will also be idled next week. A Toyota spokesperson cited safety and supplier considerations. Nissan has partially suspended production at its two Kyushu vehicle plants until August ⁠5 due ​to delays in parts deliveries, while Mitsubishi Motors said it was halting ⁠some production at a plant in Okayama, western Japan.

TOO EARLY TO TELL Mizuho Bank strategist Masayuki Nakajima said Japanese manufacturers have learnt much from their frequent experience of earthquakes but also from the COVID-19 pandemic. "It can be argued that the resilience of the supply chain is strengthened due to the diversification of ⁠suppliers," he added.

Even so, Tuesday's quake had the potential to affect the country's manufacturing ecosystem considerably, according to Nakajima, noting the large concentration of chip and chip-related plants in the region which is known as "Japan's Silicon Valley". "Semiconductors are used in a wide range of products, so the possible ​ripple effect could be huge," he said.

Potentially compounding problems, there is also a severe shortage of memory chips globally due to relentless investment in AI data centres. The world's largest contract chipmaker, TSMC, has a sprawling plant in Kumamoto. ⁠A few hours after the quake, the Taiwanese company said it had begun resuming operations but later cautioned it would take time to complete all related inspections and calibrations due to the high force of the jolt.

It did not respond to a Reuters request on Friday for an update on the situation. Chipmaker Renesas said ⁠it ​would only be able to resume operations at one of its Kumamoto plants — which had fallen ceiling panels, cracks in walls and some water leaks — in phases from August 5.

Sony, which also has a semiconductor plant in Kumamoto, said it would begin resuming operations there from Tuesday and expects to be back at pre-earthquake operating levels by the middle of the month. Tokyo Electron, a key producer of chip-making equipment, said it was moving to restart production at its factory in the area next week.

While ⁠the death toll from the earthquake has been far lower than the more than 260 that died in 2016, nearly half of the deaths occurred in commercial facilities. Nine people were killed at Nippon Paper Industries' paper mill near the epicentre, ⁠which suffered major structural damage that saw its smokestack topple over.

A further ⁠seven died at Aeon's shopping mall, the biggest in the prefecture, where a possible gas explosion occurred more than an hour after the initial quake. The police and other authorities are investigating the exact cause of the blast. Japan's trade ministry said on Friday that it had instructed gas operators in areas affected by the earthquake to promptly inspect and confirm the soundness ‌of gas-related equipment while remaining alert to aftershocks.