The auto industry around the world is bracing for bigger problems as a result of the Russian-Ukrainian conflict. The globalization of production, part of which is in the conflict region, is breaking supply chains and stopping car production inside and outside Russia and Ukraine. Reports foresee a worsening of the microchip crisis as some crucial raw materials come from the region. Fear of stagflation could also dampen auto sales by postponing non-essential purchases.
Opinion of Bogdan Maioreanu, eToro analyst
Due to a lack of parts from Ukraine-based suppliers including Fujikura, Nexans and Leoni who produce essential wiring harnesses for German cars, production of the Audi A4 and A5 models at the original Audi plant in Ingolstadt, Germany, is suspended from March 7. -11. In Neckarsulm, the production of the A6 and A7 models is interrupted from March 7 to 18. Audi has also imposed an order freeze on its hybrid models due to production disruptions, with Porsche suspending production of Macan, Panamera, while the BMW Group halts production at factories in Munich and Dingolfing, both in Germany. , next week, as well as production at the group’s Mini factory in Oxford, England. Mercedes-Benz expects to cut production at some of its European plants as supplies of parts produced in Ukraine become scarce. Ukraine is home to over 20 global automotive companies such as Bosch, Fujikura, Eurocar, Prettl, Aptiv and over 30 automotive factories. There are over 60,000 employees in the Ukrainian automotive industry. While most businesses are located near the western border with Hungary, Slovakia and Poland, still outside areas of military operations, the conflict has already disrupted supplies.
In the longer term, the crisis in Ukraine could worsen the chip crisis. A grim estimate by Commerce Secretary Gina M. Raimondo finds that “median chip inventory fell from 40 days in 2019 to less than five days.” This means that if something disrupts a foreign semiconductor factory for just a few weeks, it has the potential to shut down manufacturing facilities in the United States and beyond. Chipmaker Taiwan Semiconductor Manufacturing Company (TSM), which accounts for 50% of the global pure wafer foundry market, said it would abide by Russian sanctions. But Russia accounts for 42% of palladium, 70% of neon, 40% of nitrogen and 30% of global exports of xenon, which are key ingredients in semiconductor production. If Moscow retaliates by stopping exports, the global semiconductor industry will be affected. Experts believe that Taiwan had diversified its supply for these ingredients and had already built up stocks. According to research firm Techcet, the e-gas market in 2022 is expected to exceed US$7 billion, mainly due to the expansion of logic chip factories. There are other sources of raw materials besides Russia and Ukraine. However, in a global market, if one supplier is cut, other suppliers have the opportunity to raise prices. Palladium prices were already over $3,000 an ounce, the highest price on record. The cost of materials is not automatically passed on to consumers, but if the shortage is long enough and severe enough that automakers decide or are forced to make fewer vehicles, vehicle prices would rise.
Following the conflict and sanctions, several car manufacturers like Renault, Toyota, Volkswagen, Mitsubishi suspended production at car factories in Russia while Volvo, Daimler stopped producing trucks. The impact of these measures for major automakers has so far been limited despite business and stock price losses, but for the Russian auto industry they are very significant. A few days before the start of the military conflict in Ukraine, the Russian Automobile Manufacturers Association published car sales in January when 85,002 units were sold. The best-selling car was Lada – manufactured in factories controlled by Renault AvtoVaz -, followed by KIA, Hyundai and Renault. In 2021, nearly 1.5 million cars were sold in Russia, including 2,131 electric vehicles. 52.6% of the cars were SUVs followed by 34% class B and B+ cars. In the SUV section, the most sold is Dacia Duster with 40,662 units, followed by the Toyota RAV 4 – 37,212 and the Volkswagen Tiguan with 28,504 units. The best-selling electric car last year was the Porsche Taycan, followed by the Tesla Model 3 and the Audi e-Tron. As for trucks, 6,294 were sold in 2021, an increase of nearly 29% year-on-year. The top was dominated by Russian brands, Kamaz, GAZ and Ural followed by Volvo, Scania Mercedes, but Western brands accounted for only 44% of total trucks sold. In 2020, the automotive industry contributed almost 1% to Russia’s GDP, while its share in all engineering industries amounted to almost 40%. The sanctions and production cuts will affect the 320,000 people directly employed in the industry and more than 3.5 million employees in related industries such as materials manufacturing, vehicle operations, maintenance and repair.