Japan quake disrupts auto and chip production, tests weaknesses in supply chain

KUMAMOTO, Japan — A 7.1-magnitude earthquake that struck southern Japan this week has forced several car and semiconductor factories in the region to halt operations, but manufacturers remain hopeful that disruptions will be less severe than those caused by a similar-sized earthquake a decade ago.

Japan’s frequent exposure to natural disasters has pushed manufacturers to strengthen supply chains and improve factory resilience. The latest earthquake, which has killed 34 people, will test how effective those preparations have been.

Auto supplier Aisin, which produces doors, engines and other vehicle parts at a factory near the earthquake’s epicenter, appears to have suffered less damage compared with the 2016 quake. That earlier disaster severely damaged the plant, causing shortages of a key door component used by Toyota and forcing the automaker to suspend production at assembly plants nationwide.

Aisin Chief Financial Officer Daisuke Kondo said earthquake-resistant measures implemented at the facility since 2016 helped reduce damage despite stronger shaking this time.

The plant sustained no major structural or equipment damage, although some water pipes were affected. Nearly 200 people, including employees from some customers, were assisting with recovery efforts, but Kondo did not provide a timeline for restarting operations.

“Once we confirm that safety and quality are okay, we will resume production as appropriate. This will differ from product to product,” Kondo said.

Toyota has suspended production at three factories in the region through August 5. One facility produces Lexus luxury vehicles, while the other two manufacture hybrid vehicle components and engines. The automaker will also temporarily halt operations at an assembly plant in Aichi, central Japan, due to safety concerns and supplier issues.

Nissan has partially suspended production at two vehicle plants in Kyushu until August 5 because of delays in parts deliveries, while Mitsubishi Motors said it was stopping some production at a factory in Okayama, western Japan.

Supply chain impact remains uncertain

Mizuho Bank strategist Masayuki Nakajima said Japanese manufacturers have learned from repeated earthquake experiences as well as disruptions caused by the COVID-19 pandemic.

“The resilience of the supply chain is strengthened due to the diversification of suppliers,” Nakajima said.

However, he warned that Tuesday’s earthquake could still have a significant impact on Japan’s manufacturing sector because of the concentration of semiconductor and related facilities in the region, often called “Japan’s Silicon Valley.”

“Semiconductors are used in a wide range of products, so the possible ripple effect could be huge,” he said.

The impact could be more significant amid a global shortage of memory chips caused by heavy investment in artificial intelligence data centers.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, operates a major facility in Kumamoto. The company said shortly after the earthquake that it had started resuming operations but later warned that inspections and equipment calibrations would take time due to the strength of the shaking.

Chipmaker Renesas said one of its Kumamoto plants, which suffered fallen ceiling panels, wall cracks and water leaks, would gradually resume operations from August 5.

Sony said it would begin restarting operations at its semiconductor plant in Kumamoto on Tuesday and expects production to return to normal levels by mid-August. Tokyo Electron, a major producer of chip-making equipment, also said it planned to restart production at its local factory next week.

Although the earthquake’s death toll remains lower than the more than 260 fatalities recorded in the 2016 disaster, nearly half of the deaths occurred in commercial facilities.

Nine people were killed at a Nippon Paper Industries mill near the epicenter after major structural damage caused its smokestack to collapse. Another seven people died at Aeon’s shopping mall in the prefecture, where a possible gas explosion occurred more than an hour after the initial quake.

Authorities are investigating the cause of the explosion. Japan’s trade ministry said it had instructed gas operators in affected areas to inspect and confirm the safety of gas equipment while remaining alert for aftershocks. -Reporting by Tim Kelly in Kumamoto as well as Sam Nussey, Maki Shiraki, Daniel Leussink, Chang-Ran Kim and Satoshi Sugiyama in Tokyo; Writing by John Geddie; Editing by Raju Gopalakrishnan and Edwina Gibbs/Reuters