The conflict in Ukraine has worsened supply snags and is also pushing up prices for materials like nickel or palladium, which will put more pressure on the car sector worldwide. The surge in energy costs is also seeping into supply chains.
Volkswagen Group CEO Herbert Diess warned that a prolonged war in Ukraine risks being "very much worse" for the European economy than the coronavirus pandemic and may lead to huge price increases, scarcity of energy and inflation.
Mercedes-Benz has about 2 billion euros ($2.2 billion) of assets in Russia that could be at risk if Moscow decides to expropriate the property of foreign companies that leave the country over its invasion of Ukraine.
BMW will gradually resume production at its Munich and Dingolfing plants in Germany after it suspended production due to supply chain issues caused by Russia's invasion of Ukraine.
European automakers including Volkswagen, Porsche and Audi are struggling to obtain crucial wire harnesses as suppliers in western Ukraine have been shuttered by Russia's invasion, forcing them to curtail production.
Porsche is temporarily halting production of its Taycan EV at its Stuttgart-Zuffenhausen plant due to a lack of components caused by Russia's invasion of Ukraine.
Russia could nationalise automakers that shut operations
A senior member of Russia's ruling party proposed nationalising foreign-owned factories that shut down operations in the country over what the Kremlin calls a special military operation in Ukraine. VW, Toyota and Ford are among automakers that have temporarily closed their Russian plants.
Automakers face soaring metal costs
Russia's invasion of Ukraine is driving up the price of metals used in cars, from aluminum in the bodywork to palladium in catalytic converters to the high-grade nickel in electric-vehicle batteries.
Nissan has suspended vehicle exports to Russia given logistics challenges related to the conflict in Ukraine. Meanwhile, Russia's biggest carmaker, AvtoVAZ, will stop its Togliatti and Izhevsk plants on Saturday and from March 9 to 11 as it grapples with a crisis in supplies of electronic components.
Toyota will halt production at its Russian factory, while vehicle imports into the country have also stopped indefinitely due to supply chain disruptions. Toyota is Russia's top-selling Japanese brand.
Automakers, with their global reach, complex supply chains and millions of employees, are a prime example of how the war in Ukraine could reshape international commerce, say The New York Times. The war will force all companies to reckon with their exposure to an increasingly hostile political climate, analysts say. After trade wars and the pandemic exposed the acute vulnerability of global supply chains, the conflict will add to the pressure that corporations now face to manufacture closer to home and reduce the risk that turmoil in a faraway place will throw their operations into chaos.
Ukraine’s automotive sector is mostly located in the western part of the country, with clusters predominantly focused on the manufacturing of wiring and cables, and production for the aftermarket, says the European Association of Automotive Suppliers. Seven European and several international suppliers have manufacturing facilities in the country. In 2021, imports of auto parts into the EU from Ukraine totalled €23.3 million, and given the clear focus on wiring and cables, we are seeing short-term disruptions, as recently announced by Volkswagen and Skoda. Exports to Ukraine totalled €855 million, making it the 42nd export destination for EU automotive suppliers.
Russia has a significant automotive sector, employing around 600,000 people, roughly 1% of the country’s total workforce. Several OEMs have a strong presence in Russia, mainly Hyundai and Kia but also Stellantis, Renault and Toyota, with 34 automobile assembly and production plants in-country. More than 30 European suppliers have facilities in the country and foreign direct investment by European suppliers between 2010 and 2021 totalled €2.3 billion. Russia produced 1,767,674 vehicles in 2018, ranking 13th among car-producing nations, and accounts for 1.8% of the worldwide production.
Ukraine and Russia play a role in the downstream automotive supply chain.
29% of steel imported into the EU comes from Ukraine. It is also one of the largest suppliers of a number of noble gases used in the production of chips, particularly the neon used in lasers that etch features onto chips. According to an insider quoted in the FT, Ukraine is responsible for 25% of global neon supplies. Further, Russia represents:
- 9% of primary aluminium EU imports
- 42% of semi-finished steel EU imports
- 42% of palladium supply (85% of palladium produced is used for automotive catalysts)
- 12% of platinum supply (39% of platinum produced is used for automotive catalysts)
- 9% of rodium supply (91% of rodium produced is used for automotive catalysts)
- 11.2% of the world’s nickel production used in vehicle batteries
Transport of goods and border controls
Export restrictions and controls are causing issues as not only customs authorities but also freight forwarders will have to make themselves aware of the new restrictions and thousands of different products and technologies traded between Russia and the EU.
The crisis is also resulting in disruption of global transport and its full impact is yet to be felt in coming days. Polish transport companies alone employ 103,000 Ukrainian drivers, who either made their way to the battlefield or are seeking to bring their families to safety. Some truckers have no longer been able to cross borders, leading to separation of trucks and trailers, as the trailer crosses the border and continues with another truck/driver.
The train lines for cargo between the EU and China (through Ukraine and Belarus) are currently disrupted. It is important in both directions for imports of components and raw materials as well as exports of finished goods. Air transport is also blocked. The closure of Russian airspace to Western airlines has led to EU logistics companies to stopping shipments there until further notice. Shipments to Belarus and Ukraine have also been affected.