The war in Ukraine begins to affect the automobile industry in Europe

With factories stopped at Russia and idle production at Europethe car builders The first effects of the war in Ukraine are beginning to be felt. And these can still be aggravated.

The sanctions are affecting banks and logistics and slowing down production in Russia. The AvtoVAZ group, number one in the country and owned by the French Renault, announced on Thursday the paralysis of its factories for four days “due to supply problems in electronic compounds”, scarce in the market since the beginning of 2021.

The huge and iconic factory in Togliatti (south), which produces the Lada, is going to stop. The Moscow factory of the Renault group, which produces for the local market, has also been stopped since February 28.

The Korean group Hyundai-Kia, number two in sales in the country, also stopped production at its St. Petersburg factory until the week of March 7, assuring that this decision was not linked to the conflict but to the shortage of components.

With the war, vehicle sales were also suspended in Ukraine, a small market that had recently started buying more European or Asian vehicles instead of Russian brands. Russian troops were this Thursday in the Zaporizhia area (southeast), where the country’s only automobile plant and its largest nuclear power plant are installed.

promising market

Russia was a promising market for foreign manufacturers with the end of the USSR and they built assembly factories there to avoid high import customs fees.

In May 2021, Tesla owner Elon Musk had even announced that he could build his company’s fourth world power plant on Russian soil, despite the fact that the electric vehicle market is just taking its first steps in this oil-rich country.

Russia’s car market had taken off but crashed with the 2009 financial crisis and took a hit with economic sanctions linked to the 2014 invasion and annexation of Crimea.

In 2021, a total of 1.5 million vehicles were sold in Russia, that is, the same amount as in Italy, a country that more than doubles in population.

Russia continues to be an “automotive dwarf”, stresses expert Ferdinand Dudenhöffer in an analysis published for the Duisburg Automobile Research Center (Germany): only 5% of the vehicles sold are made with Russian technology, and the rest depends on Russia. foreign companies.

Toyota, Volkswagen, BMW, Mercedes, Volvo, Jaguar and Ford also announced this week that they were suspending their operations (manufacturing and delivery) until further notice, citing logistical problems or “the current geopolitical situation.”

On its side, the world truck giant Daimler ended its collaboration with the Russian manufacturer Kamaz, a supplier to the Russian army.

China as a replacement?

Could Chinese automakers replace Western ones in Russia? “Chinese brands were already gaining market share by exporting vehicles to Russia. This crisis could be an opportunity, unless the possible sanctions are important”, emphasizes Felipe Muñoz from the Jato Dynamics cabinet.

“China could reinforce its credits and its aid to Russia, which would make the latter its economic satellite,” says Düdenhoffer.

The Russian market would fall to 1.1 million vehicles in 2022, according to estimates. It could even collapse to 800,000 units sold as in 2015, which would put Russia behind Spain or Mexico.

The war also slows down car production in Western Europe: the Wolfsburg factory, the heart of the Volkswagen group, will be out of service the week of March 14 due to lack of supply from Ukrainian suppliers.

The rising cost of raw materials and energy (especially gas, but also electricity and oil) could also make vehicles more expensive for all manufacturers to produce.