Why the Russia-Ukraine Conflict has Decreased Global Auto Production

As a result of Russia’s invasion of Ukraine, auto industry analysts have lowered their production and sales predictions for the next two years. The crisis has resulted in the closure of industries in Eastern Europe, as well as increases in the pricing of already scarce raw resources.

Despite the invasion, some Ukrainian factories have attempted to continue operating. Workers have reportedly been forced to take time off work to avoid being hit by rockets.

In March, S&P Global Mobility decreased its global auto production forecast for 2022 and 2023 by 2.6 million vehicles in both years. In a worst-case scenario, up to 4 million automobiles would be lost.

The violence has resulted in logistical and supply chain issues, as well as essential vehicle component parts shortages. Many automakers, for example, get wire harnesses from Ukraine, which are used in automobiles for electrical power and communication between parts. The issues add to a supply chain that is already stretched due to the coronavirus epidemic and a supply constraint of semiconductor chips.

The output of European automobiles is predicted to drop by nearly 9%, or about 1 million vehicles. The greater fear is material and part shortages, which are already affecting European automakers and, according to the research, might expand to other markets if the war continues.

The analysis noted problems in the region’s supply of crucial automobile parts, including wire harnesses from Ukraine. Raw resources, such as palladium, which is used to purify vehicle emissions, are also in jeopardy. Russia produces roughly 40% of the world’s raw palladium. Nickel, which is used in electric vehicle batteries, is also produced in the region. Iron, for example, is a common mineral and metal that is affected. All of these are important components in the production of automobiles.

According to S&P, over 45% of Ukraine-made wiring harnesses are routinely exported to Germany and Poland, putting German automakers at risk. Since Russia’s invasion of Ukraine three weeks ago, automakers such as Volkswagen and BMW have been among the hardest hit.

Volkswagen CEO Herbert Diess stated earlier this week that the battle has put the automaker’s 2022 forecast in jeopardy due to parts shortages. Due to the impact of the ongoing Ukraine situation, BMW lowered its profit margin prediction for its automotive segment for 2022 from 8% -10% to 7% -9% on Wednesday.

 

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