What could be the economic impacts of the war in Ukraine?
- The automotive industry, which is currently trying to cope with the shortage of semiconductors, is now affected by a new disruption in the supply of automotive components, this time from Ukraine, following the invasion of this country by Russia. European car manufacturers are and will be the most affected by this supply disruption, as they are the ones who source the most from Ukraine.
- Ukraine produces in particular electrical wiring harnesses for several manufacturers including Volkswagen and BMW, aluminum as well as palladium and nickel essential in catalytic converters and batteries for electric vehicles. The embargo against Russia will also disrupt the supply of natural gas and oil to Europe, which will have serious consequences on the price of these products. Russia also supplies 40% of palladium globally.
- The manufacturers most affected today are the German manufacturers who produce in Germany and Central Europe, and source various components from Ukraine.
- The impacts of the war in Ukraine will be many and multiple, and may create a recession comparable to that which emerged after the first oil shock of 1973-1974. Even if the war ends quickly, the repercussions will continue for a long time, once again highlighting the need to relocate component production to Europe when possible. Soaring oil and commodity prices can only create a significant drop in vehicle sales in Europe. The risk of nationalization of foreign factories in Russia is also a fact to be taken into account.
- Contrary to the American manufacturers GM and Ford, which recently left Russia, the European manufacturers did not take into account the situation of tension which could exist between Ukraine and Russia, and therefore the risks involved, which poses in particular the problem of the viability of Renault's investment in Russia (with the takeover of Lada).
- The European automotive industry could also see its costs increase sharply, due to the rise in the price of raw materials and the change in certain sources of supply. The competitiveness of the European automotive industry could therefore decline, which will make the European market increasingly vulnerable to Chinese manufacturers who offer less expensive vehicles for the same service. China can take advantage of this situation, especially since the European automotive industry was already under attack from the forced reorientation towards electric motorization, the instability of regulations, traffic restrictions and tax pressure. The supply focused on high-priced vehicles does not meet the share of demand for more affordable vehicles.
- The European Commission and car manufacturers were on their way to turning the automobile into something less popular, the conflict between Russia and Ukraine could make it even more exclusive, thus favoring the opportunity for a greater breakthrough and more fast from Chinese manufacturers. These – less impacted by supply disruptions than European manufacturers – are indeed able to meet demand that is difficult to satisfy in Europe, due to a lack of sufficient production volumes for affordable vehicles.
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