The war in Ukraine plunges carmakers into a new supply chain crisis


BERLIN — After a pandemic and a global chip crisis, Russia’s war in Ukraine has sparked the third supply chain crisis for automakers in as many years.

Fighting in Ukraine has shuttered small but important industrial suppliers, shuttering factories far from the conflict zone, while sanctions and cut trade routes are hampering shipments of cars and parts to and from Russia, once seen as a growing market.

European car manufacturers such as Renault HER,

RNO -2.70%

which owns AvtoVAZ, the Russian company that manufactures the Lada brand, Volkswagen HER

WISH -0.46%

and its brands Audi, Skoda and the sports car manufacturer Porsche,

are among the hardest hit by the sudden shutdown of operations in Russia and the lack of vital parts from Ukrainian suppliers.

VW said on Thursday that “in the context of the Russian attack on Ukraine and the ensuing consequences”, it was suspending vehicle production in Russia and exports to the country with immediate effect and until further notice.

“With the widespread disruption of business activities in Russia, the board is considering the implications of the overall situation during this period of great uncertainty and upheaval,” the company said.

The fallout is not limited to Europe. By the middle of this week, nearly a dozen global automakers had suspended operations in Russia, with some closing factories indefinitely. Toyota engine Corp.

MT -1.41%

said on Friday it would keep its St. Petersburg plant closed until further notice. Ford engine Co.

suspended its joint venture with Russia’s Sollers OJSC and halted sales in the country. Hyundai Motor of South Korea Co.

Ltd., one of Russia’s biggest automakers, closed its St Petersburg plant, saying it hoped to reopen within a week.

After idling two factories in eastern Germany, VW said production would soon be affected at its flagship plant in western Germany due to missing parts from Ukraine. And manufacturers that operate factories in Russia say the strain on supply chains has been compounded by Russia’s exclusion from the SWIFT international interbank payments system. The blockade of Russian airspace and disruptions to shipping lanes have slowed the movement of goods to a trickle.

The dispute is another blow to a sector that saw widespread supply chain disruptions at the start of the Covid-19 pandemic. Then came a global semiconductor shortage that crippled production, all amid a costly transition to electric vehicles, the industry’s biggest transformation in more than a century. The new shock could now reverberate far beyond the sector, which is among the biggest industrial employers in large parts of the West.

Analysts say the initial impact of the war on some automakers could cut global vehicle production by about 1.5 million vehicles this year. That’s 2% less than the 84.2 million vehicles that IHS Markit predicted the industry would build before the war.

That’s the optimistic scenario, says Stephanie Brinley, automotive analyst at IHS Markit.

“It could also reduce production by 3 million vehicles,” she said, adding that it is far too early to know just how chaotic global supply chains will become. “We have no visibility,” she said.

Even before the war in Ukraine, VW was struggling to maintain assembly lines at its main plant in Wolfsburg, Germany, due to various global shortages and disruptions to trade routes.

Toyota said it would suspend production in Russia until further notice, citing difficulties obtaining parts.


Photo:

Piotr Kovalev/Zuma Press

When the war in Ukraine started, dozens of auto parts manufacturers closed their factories in the country. Although Ukraine has a small auto parts industry, it has become a key supplier of wire harnesses needed to organize a car’s wiring and connect its various components.

Suppliers of such systems with factories in Ukraine include Leoni AG, Japanese Fujikura Ltd., Aptiv Plc and Nexans. HER

. Work at these factories ceased almost immediately after the start of the Russian invasion, affecting VW factories in Eastern Europe as well as Germany.

VW idled its Zwickau plant in eastern Germany this week, where it manufactures the ID.4 electric car for European markets and for export to the United States. lack of parts.

Porsche, which is owned by VW, has halted production at its Leipzig plant, where it builds the Panamera sedan and Macan sport utility vehicle. The halt in production at the factory could slow Porsche’s ability to deliver popular models to customers around the world.

Bayerische Motoren Werke HER

said it would halt production next week at its main factory in Dingolfing, where a spokesperson said the company was building up to 1,600 cars a day, including its flagship 5, 7 and 8 series sedans BMW will have downtime at its Munich plant and its Mini factories in the Netherlands and the UK due to missing parts.

Skoda, the VW-owned Czech automaker, sold 90,400 cars last year in Russia, its second largest market after Germany. The Czech automaker builds vehicles at VW’s multi-brand factories in Nizhny Novgorod and Kaluga, where the company has now suspended operations.

Russian airstrikes continued, hitting government and university buildings in Ukraine’s second-largest city, Kharkiv. President Zelensky has called on Russian President Vladimir Putin to stop the attacks before ceasefire talks can resume. Photo: Sergei Bobok/AFP/Getty Images

Skoda also said it suspended operations at a plant in Solomonovo, Ukraine, where its partner Eurocar assembles Skoda models such as the Superb, Kodiaq, Karoq and Fabia for the Ukrainian market.

At its main plant in Mlada Boleslav in the Czech Republic, the automaker has cut production of its all-electric Enyaq sedan due to a shortage of local parts.

Suppliers who closed their factories in Ukraine said they were constantly assessing the situation to determine if and when they could resume production. During this time, they tried to replace the lost Ukrainian production by moving to other sites.

Leoni closed its factories in Stryji and Kolomyja at the start of the fighting after what a spokesman said were Russian rocket explosions nearby. Leoni said he was assessing the viability of moving production from Ukrainian factories to existing factories in neighboring countries like Romania, or to existing factories in North Africa.

Aptiv, a Dublin-based automotive electronics supplier, manufactures electrical systems in western Ukraine for Western European automakers. As tensions rose ahead of the invasion, Aptiv began moving some of the higher-volume production out of Ukraine, company executives said Feb. 24.

“Just so we’re in a better position to handle disruptions,” said Joseph Massaro, Aptiv’s chief financial officer. “We’ll see what happens.”

Learn more about the challenges facing businesses

In Russia itself, where sanctions have made it all but impossible for Western companies to do business, automakers are running out of parts, closing factories and suspending imports.

Toyota Motor Corp. announced on Wednesday that it will suspend production in Russia from Friday until further notice, citing difficulties in obtaining the parts it needs. Toyota builds the Camry sedan and RAV4 models at its St. Petersburg plant and manufactures up to 80,000 vehicles a year. Most vehicles are sold in Russia, but a small number are exported to Kazakhstan, Armenia and Belarus, the company said.

Toyota said it would also halt sales of imported vehicles in Russia. With vehicles produced in the country and vehicles imported from outside Russia. It sells about 120,000 cars a year in Russia, a Toyota spokesman said.

Mercedes-Benz Group HER

Hyundai, Ford, Renault and BMW have also closed Russian factories.

Investors depreciated on the shares of companies with high exposure to Russia.

Before the war, Renault generated about 8% of its profits before interest and taxes from its Russian operations, according to a study by Citi.

Renault shares have fallen 30% since an earnings call on Feb. 18, when investors polled the company on Russia and Ukraine. An investor asked management what the impact would be on Renault “if the geopolitics tightened up a bit”.

Clotilde Delbos, Renault’s chief financial officer, said the financial risk was borne by AvtoVAZ, not Renault, because the Russian company’s debt and financing was local without Renault’s backing.

“They are completely self-sufficient, even though they are in debt, especially AvtoVAZ,” she said. “But it’s purely local.”

The French automaker has three factories in the country, one in Moscow, another in the town of Togliatti and a third in Izhevsk, 700 miles east of Moscow. A Renault spokeswoman said the company closed the Moscow plant on February 28 and would keep it running until March 5 “due to logistical issues”.

Chinese automakers have also made inroads in Russia and are worried about the effects of the war on their business. Great Wall Engines Co.

opened a factory in Russia in 2019 and more than doubled its sales in the country last year. Chery Automobile Co., which more than tripled its sales in Russia in 2021, said it was looking for a local partner in Russia to produce electric vehicles in the country.

Russia was the third largest destination for Chinese car exports last year after Chile and Saudi Arabia, according to the China Passenger Car Association.

“The Russian-Ukrainian conflict poses a huge risk to the Chinese auto industry,” Cui Dongshu, secretary general of the association, wrote on his WeChat social media account on Sunday. Mr. Cui warned Chinese auto exporters to prepare for risks of ruble depreciation.

Write to William Boston at [email protected]

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