October 4, 2023

The Ukraine war has been slowly changing everything around us, causing ripple effects in the auto world as well.

In fact, most key players across the automotive industry have taken decisive action or have been heavily impacted by Russia’s invasion.

So let’s take a look at what’s happening.

Suspension of business and halt of production

Following the imposed sanctions against Russia, most automakers have suspended vehicle exports to the country and frozen overall business activities.

Among them, Volvo, Volkswagen, BMW, and Toyota have also stopped production at their Russian facilities either in alignment with the sanctions (as is the case with the first three OEMs), or due to supply chain disruptions (as is the case with Toyota).

Notably, parts shortage and supply problems have expanded the halt of production beyond Russia. Among them:

  • Volkswagen is slowing production at its main factory in Wolfsburg and several other Germanplants.
  • BMW is facing production problems at its factories in Germany, Austria, and the UK.
  • Porsche’s production will stop at its Leipzig plant.

Parts shortage and supply disruptions

The Ukraine crisis has deteriorated even more the already pandemic-strained global supply chain.

On top of the semiconductor shortage, automakers are now facing the lack of other critical components, such as wire harnesses, neon gas, and palladium.

Ukraine is one of Europe’s main wire harness suppliers, accounting for one fifth of the total supply. The component is necessary for the vehicles’ electronic parts and a fundamental step of the assembling process — as a result of the invasion, the Ukrainian plants manufacturing it are now closed.

The US is going to be hit hardest by the neon gas shortage. The country’s neon supply, which is used among others for chip production, comes almost entirely from Ukraine and Russia, according to Techcet, a market research firm that specializes in critical supply chain materials and components.

The firm also estimates that Russia supplies about 33% of the global demand for palladium — a metal necessary for semiconductor chips.

Rising prices of raw materials and inflation

Apart from palladium, Russia is a significant supplier of other automotive-grade metals: aluminum and nickel — the last one being a key element of EV batteries.

Following the sanctions, nickel prices skyrocketed 90% to an all-time high on March 7, while aluminum jumped to a record of $4,000 per ton due to growing fears of supply disruptions.

And it’s highly likely that automakers will pass on the increased costs to consumers.

“With prices for oil and gas, along with commodities like metals used to build vehicles, soaring due to Russia’s invasion of Ukraine, automakers may be compelled to try to offset their increasing costs by raising vehicle prices,” Michelle Krebs, executive analyst at Cox Automotive, explains.

A pessimistic global market outlook

Research firm IHS Markit expects the global impact this year to be about 3.5 million fewer vehicles in connection to semiconductor chip constraints — both associated with the shortage in neon gas and palladium.

Based on the current situation, European automakers (many of whom are facing production halts, as described above) are suffering the biggest blow, while we can expect that the US market will be significantly hit as well.

On the contrary, the Chinese auto market could remain unaffected, as the country hasn’t yet imposed any sanctions against Russia and doesn’t wish to be part of the Ukraine crisis.