Written by | Hollow Knight
Edit | Routing Agency
Within the visible range, the conflict between Russia and Ukraine, or the projection falling in the world of automobile manufacturing.
In the early morning of Tuesday (February 22) Beijing time, the situation in eastern Ukraine underwent a major change.
Russian President Vladimir Putin signed a presidential decree recognizing the "independence" of the "Donetsk People's Republic" and the "Luhansk People's Republic" and signing the treaties of friendship, cooperation and mutual assistance between Russia and the "Donetsk People's Republic" and the "Luhansk People's Republic".
As soon as the news came out, the Western world reacted strongly, and some Western countries, including the United States, high-profile threats to sanction Russia. Tensions that have lasted for several days have escalated further.
At present, a series of multinational companies involved in the Russian and Ukrainian markets have become worried about being exposed to the epicenter of the crisis.
On February 22, well-known multinational companies, including Nestlé, Coca-Cola, Impka Group (the main operator of IKEA), German retailer METRO, German cement producer Heidelberg, Finnish refiner Neste, Danone and BASF, all said through spokesmen that they would "pay close attention to the situation in Russia and Ukraine" and, if necessary, launch "plans to ensure business continuity" in response to "potential sanctions" in the West.
First, Renault's business in Russia bore the brunt
Among the multinational companies that are worried about the Conflict between Russia and Ukraine, there are also many automakers.
The Renault Group is the first to bear the brunt. Luca de Meo, the group's chief executive, said it would closely monitor the ongoing diplomatic discussions.
As a French automobile manufacturing group, Renault controls the Russian automaker Avtovaz (Volga Automobile Factory) through a joint venture, commonly traded as "Lada".
Workers at the Izhevsk plant of Lada Automobile are working on the production line
Clotilde Delbos, Renault's chief financial officer, said Rada's liabilities and financing were only local, with "no support from Renault Group" and that its business was "completely self-sufficient."
"From our point of view, Lada is safe." She added.
Renault spokeswoman Rie Yamane said that "at this stage, it is too early to estimate the impact of possible sanctions".
Although Renault has not been able to estimate the extent to which its operations in Russia will be affected, Rada has shown uneasiness.
Nicolas Maure, the company's chief executive, said Rada is looking for a secure alternative to the supply of electronic chips to prevent chip delivery restrictions triggered by U.S. sanctions. But Maure did not specify how Lada would ensure a secure supply of chips from its car plant.
According to AEB Trading Group, Russian car sales will grow by 4.3% in 2021 to 1,666,780 units. Of the top 10 models sold, five are products of the Renault Group. These include the number one Lada Vesta model, which sold 113,698 units. Among the top 25 best-selling models in Russia, 12 products are from the Renault-Nissan-Mitsubishi alliance, 6 are from the Hyundai-Kia Group, and 4 are from the Volkswagen Group.
In Russia, the Renault-Nissan-Mitsubishi alliance (including Lada) has a market share of 38% in 2021, of which Rada alone accounts for 22.4%. Hyundai-Kia's share is about 19 percent; Volkswagen Group's is 9.5 percent, and Toyota and Lexus are 8.6 percent.
In addition, the best-selling luxury car brand in the region is BMW, with sales of 46,800 units in 2021. Mercedes-Benz ranked second with sales of 43,011 units. This was followed by the Lexus and Audi brands, which sold 19,362 units and 16,404 units respectively.
At the end of January, Olivier Mornet, president of sales and marketing at Lada, told the media that he expected sales in the Russian market to rise slightly this year.
"By 2022, car sales are likely to grow slightly to 1.75 million units. But this is only a basic prediction, and many factors may affect the final result. He said.
Renault Shares fell 4.2 percent on Tuesday, embroiled by the Russian-Ukrainian conflict.
Second, the future of russian automakers is uncertain
Among many car manufacturers, Renault Group's interests in Russia are perhaps the largest. But other European automakers are also operating in the country and have achieved significant sales.
Among them, volkswagen group and Stellantis group are more prominent, two multinational car manufacturers have factories in the Russian city of Kaluga.
Located about 180 kilometers southwest of Moscow, Kaluga has developed into the center of the Russian automotive industry in recent years. Well-known component suppliers such as Continental, Magna International and Visteon also have a presence in the region.
At present, the Volkswagen Group produces the VW brand SUV model Tiguan and the polo compact car at the Kaluga plant, in addition to the Rapid, a compact sedan under the Skoda brand. In addition, the group manufactures engines from SKD semi-bulk parts and assembles Audi's SUV models, the Q7 and Q8.
Volkswagen Kaluga plant
Volkswagen's Kaluga plant opened in 2007. Last year, the plant produced 118,000 vehicles and 150,000 engines.
In Russia, volkswagen group also signed a foundry agreement with Gorky Automobile Group (GAZ). The latter, as a contract manufacturer, produces a portion of Volkswagen and Skoda models at its plant in Nizhny Novgorod.
Volkswagen said it had invested more than 1 billion euros (about 7.164 billion yuan) in the Kaluga plant and more than 2 billion euros (about 14.328 billion yuan) in Russia.
"The Volkswagen Group has taken note of the escalation of the situation and will continue to pay close attention to it. . . . Volkswagen still hopes that the conflict will be resolved quickly and peacefully on the basis of international law." The group said in a statement on Tuesday.
Also in Kaluga, the Stellantis Group and Mitsubishi Motors operate a joint venture plant. Just last month, Stellantis Group announced that it would begin exporting trucks from the plant to Europe.
The plant has been manufacturing trucks for the former PSA Group since 2017. In early 2021, PSA Group merged with Fiat Chrysler Automobiles to form the current Stellantis Group. Currently, the Kaluga plant assembles vans for the Peugeot, Citroën and Opel brands.
"We are closely monitoring the situation and have no further comment at this stage." A spokesman for the Stellantis group of companies said Tuesday.
In addition to the above 3 car manufacturers, there are also some influential car companies with operations in Russia.
Ford Motor Company is the first international automaker in the world to launch a car assembly business in Russia. The company opened a factory in St. Petersburg in 2002 and exited the Russian passenger car market in 2019, closing two car plants and an engine assembly plant. The U.S. company has since continued to assemble trucks with Russian partner Sollers at its Yelabuga plant.
Ford brand van, a joint venture between Ford and Soles
Mercedes-Benz has previously invested more than 250 million euros (about 1.791 billion yuan) to build a factory in northwestern Moscow to produce Mercedes-Benz E-Class sedans and some SUVs. The plant, which opened in April 2019, currently employs more than 1,000 people.
The BMW Group has also assembled SKD semi-bulk parts since 1999 at a plant in Kaliningrad, which is operated by Russian car manufacturer Avtotor. In 2020, BMW canceled plans to build a complete assembly plant in Russia.
"We are very closely following recent developments and hope to prevent further escalation," a Mercedes-Benz spokesperson said in an email, "of course, we will also consider possible sanctions in our business activities with Russia."
BMW and Ford did not immediately comment on this. But BMW has told overseas media that "politics determines the company's operating rules" and that "if the framework conditions change, the company will evaluate it and decide how to deal with it."
Third, the supply chain may face greater tests
If automakers that face consumers intuitively show the possible impact of the Russian-Ukrainian conflict on the auto manufacturing industry, then some of the more difficult-to-detect changes in the upstream of the industry are also happening.
Nokian Tyres in Finland is one example. The multinational tire manufacturer has a factory and a large warehouse in Russia, both of which supply the entire Russian and Eastern European markets.
"As part of our normal risk management efforts, we will be prepared for different contingencies," said Tarja Pennanen, a spokesman for Nokian Tyres, "and due to the current geopolitical situation, we will intensify our work in this area, including re-planning for the availability of raw materials." ”
She said Nokian Tire is ready to transfer part of its product portfolio to factories in other countries if necessary.
In fact, as tensions escalate in Eastern Europe, plans for the supply of auto parts in the region have been severely disrupted, new car production has been disrupted, and there may even be some shortages of auto parts around the world.
Alexandra Dubrovskaya, head of vehicle operations coordination at Chrysler Group Russia, said protracted political clashes had taken an impact on the cost of car logistics in Eastern Europe. In the past, a large part of the complete vehicles and auto parts were supplied to Russia from Western Europe via Ukraine. Now, it is clear that things will change.
"Since 2014, the supply of transit transport between Russia and Europe (Western Europe) through Ukraine has been closed. Due to the problem of immigration on the border between Belarus and Poland, supplies entering the Russian market through Belarus are also decreasing. Today, we are in the Baltic States, with only a narrow corridor left, and our political relations with the countries along these corridors are also tense. Dubrovskaya said.
Russia's trade corridor to the EU is becoming narrower
She added that over the past few years, supply chain adjustments have multiplied the distance, delivery time and logistics costs of parts: "The global logistics market has been turbulent due to the trade war and the coronavirus, which means that the original supply plan has been interrupted. Unfortunately, for political reasons, these problems are now out of control like an avalanche. ”
In Russia, most people do not expect the conflict to escalate further. But the concerns held by automakers' upstream partners mean they will make their own adjustments in parts supply.
On the other hand, the sanctions that the United States may impose on Russia may include "restricting the export of some auto parts to Russia."
According to a previous announcement in Washington, some multinational automakers have launched an urgent investigation into the long-standing list of parts suppliers to analyze possible risks.
"We can assess the depth of the impact of this round of conflict only after an in-depth analysis of the list of components obtained from the United States and the possibility of replacing them with local components or those from other countries." Roman Skolsky, Nissan's communications director for Russia's Eastern Region, said. He also said that Nissan's supply chain in Russia has achieved a high degree of localization, so it is not expected to have an undue impact on the company's new car production.
"I don't think that restricting the supply of auto parts in the United States will have a very negative impact on Russian companies." Dmitry Babansky, head of SBS Consulting, a Moscow-based analytics firm, said.
He added that Russia's auto parts imports from the United States are mainly fuel tanks, exhaust pipes, steering wheels and other products, which can be sourced from elsewhere.
But these optimistic judgments depend on the ATTITUDE OF the EU. If the EU joins U.S. sanctions, the situation in the Russian automotive industry will take a sharp turn for the worse. And if the country further derails from the SWIFT international settlement system, the situation will get worse.
A report by the Carnegie Moscow Center's Domestic and Foreign Policy Think Tank states that "Russia's severance of ties to the SWIFT settlement system would terminate all international transactions, trigger currency volatility and lead to massive capital outflows."
In 2014, Russia established its own payment system, SPFS, after being sanctioned by the West. The emergence of the latter means that trade between Russian companies will proceed as usual once the country is disconnected from SWIFT, but it will become almost impossible to procure auto parts and logistics services from overseas companies.
"In fact, if the import of Russian auto parts is subject to major international restrictions, it may lead to a complete shutdown of the country's vehicle production." A Russian automotive source, speaking on condition of anonymity, commented.
The source cited gorky automobile groups, which have been threatened by U.S. sanctions for years, as an example. The group has publicly confirmed that it will stop production of new cars if the supply of parts is actually limited.
In 2019, Oleg Deripaska, the owner of the Gorky group, warned that "the day Western sanctions are fully in effect" could be the group's "last day of production operations."
Oleg Deripaska, boss of Basic Element, one of Russia's largest industrial groups and RUSAL, the world's second largest aluminum company
Speaking at a parliamentary meeting late last year, Russia's minister of industry and trade, Denis Manturov, said the average localization rate for the Russian auto industry was 67 percent, up from 75 percent on certain specific models.
"Our authorities are proud to have achieved some of the localization manufacturing goals, but it doesn't matter. Whether you have a localization rate of 10%, 50%, or 90%, we still can't produce a complete vehicle with only 90% of the parts. The source said.
He added that if tensions escalate further, concerns about "withdrawing money from revenues from the Russian market" could also prompt some Western companies that have already localized to leave the country.
"It's like a domino effect that has hit the Russian auto industry from the top down." He said.
Unlike these pessimistic tones, Dubrovskaya's attitude is more positive. She believes that if Russia is subjected to Western sanctions, it will indeed have some short-term effects, but in the long run, the situation will not get worse.
"The complete vehicle assembled in Russia has been successfully exported back to Europe, and in the current shortage of vehicles, no one will refuse." She said.
Over the past few years, Russia has made some progress in terms of vehicle exports. In the first nine months of 2021, the country exported 73,200 vehicles, an increase of 43% year-on-year, while total exports increased by more than 50% to $1.1 billion.
Most of the complete vehicles used for export are assembled in northwestern Russia and exported to Europe through the seaports of St. Petersburg.
"Maybe for a while, new car exports will be suspended, but eventually a new trade order will be established." Dubrovskaya said. For example, she said, after Russia was sanctioned by the West in 2014, some restricted goods were still exported through Belarus.
"The situation is still changing. But I believe that experienced people who have been in this kind of business for a long time have calculated similar risks and have developed some backup plans in case the situation goes in a bad direction. Dubrovskaya said.
"Let's not forget that in business, there are always losers and winners, and anything can turn into a loss or a profit, depending on how the business manages." She added.
For Ukraine, the Russian-Ukrainian conflict is also not a good thing.
Executive Director of the European Business Association of Ukraine Anna M. Anna Derevyanko commented that the automotive logistics business now has to face considerable uncertainty due to the impasse between the two countries.
Anna Derevyanko, executive director of the European Business Association of Ukraine
"There is no doubt that an escalation of the conflict means that all industries will be affected to a greater or lesser extent, including the automotive industry and logistics. However, the extent of this impact will depend on the scale and depth of the conflict. Jereviyanko said.
She also acknowledged that the current lingering tensions in the region are affecting the flow of business investment into Ukraine, and the automotive sector is also included.
Over the past few years, several of the world's leading automotive suppliers have opened production facilities in Ukraine, including Fujikura, Kromberg & Schubert Cable and Leoni Cable Harness. For these multinationals, Ukraine offers a low and experienced workforce. In addition, the country has also signed a free trade area agreement with the European Union.
"Potential investors will temporarily wait and see from a distance and will not rush into the Ukrainian market." Jerevyanko said. She said the Ukrainian auto industry hoped that the current situation would not last long and that "there is no need to develop Plan B or Plan C".
Fourth, the potential impact on the global automotive market
In addition to the impact of the Russian-Ukrainian conflict on Russia and Ukraine itself, if the West imposes sanctions on Russia, it may also have an impact on the global automotive industry.
In the process, the Western economies themselves will be the first to suffer backlash. Because Russia produces 45 percent of global palladium production, palladium is widely used to produce catalytic converters in automobiles.
Some analysts say restricting imports of palladium from Russia would be a direct blow to the global auto industry.
Alfa-Capital, a Moscow-based financial firm, said global palladium prices rose 30 percent in January, from $1,750 an ounce to $2,400 an ounce, as a result of threats from sanctions.
Palladium, one of the rarest precious metals in the world
Dmitry Skryabin, manager of Alfa-Capita, said the current recovery in global automotive demand and export restrictions on Russian palladium could lead to severe shortages of some key components and push palladium prices to record highs.
"We assume that in the past year, there has been a fairly high, pent-up demand for new cars in the market. With chip supply normalizing, manufacturers can expect global automotive demand to hit record highs in 2022. Scriabin said.
European securities economist Otkritie Broker commodities market analyst Okusana M. Oksana Lukicheva said the global auto market was very worried that Russia could stop supplying palladium metal due to a new round of Western sanctions. She added that the current level of risk in the market is quite high.
On the other hand, according to Maxim Khudalov, head of the ratings department at Akra, a Russian consultancy, while producers in Zimbabwe and South Africa help address possible palladium shortages in the global market, these suppliers will need time to ramp up production.
"By then, the damage to the global automotive industry has been done." He warned.
What's more, crude oil prices are also likely to be pushed to all-time highs.
Currently, Ukraine ships Russian oil to countries such as Slovakia, Hungary and the Czech Republic. Platts Energy Information said in a report that Russian crude oil exported to the EU via Ukraine was 11.9 million tons in 2021, down from 12.3 million tons in 2020.
On February 21, international oil prices rebounded sharply from their lows of nearly $5, New York crude oil prices are close to the high of more than 7 years set last week, and Brent crude oil prices also broke through the $97 mark, hitting a new high in more than 7 years.
Huaan Fund believes that the tension between Russia and Ukraine may catalyze the further rise in the price of crude oil, coal, natural gas and other energy sources, of which the international crude oil price may break through $100 per barrel in the short term.
Energy regulators say rising oil prices could accelerate the global auto market's transition to electric vehicles, but there is also a risk of hurting the global economy.
With crude oil prices now approaching a high of $100, the International Energy Agency (IEA) has warned that unless large oil producers ramp up production, oil prices could climb and cause market volatility.
"While higher crude oil price levels may accelerate the pace of electrification of the transport sector and help accelerate the energy transition, they may also be a drag on economic recovery, especially in emerging and developing countries." The International Energy Agency said.
The agency explained that the lower cost of using electric vehicles could encourage more motorists to switch sooner than originally planned, thereby driving the transport sector's efforts to reduce pollutant emissions. But higher fuel prices could also trigger cost inflation in the global economy, especially in developing countries.
This is in line with JPMorgan Chase's latest forecasts. The agency believes that tensions between Russia and Ukraine could lead to a "substantial spike" in oil prices, which in turn could hurt the global economy. JPMorgan noted that if oil prices rise to $150 a barrel, the annualized growth rate of global GDP will fall to 0.9% in the first half of this year, while inflation will more than double to 7.2%.
Write at the end:
In the short term, from a geographical point of view, the Russian-Ukrainian conflict will undoubtedly have a direct impact on Russia, Ukraine, and even the entire European automaker map; from the perspective of the industrial chain, the relevant impact may also have a huge impact on the supply of parts.
In the medium and long term, the chain reaction caused by soaring crude oil prices and limited supply of palladium metal is more difficult to be controlled in local areas, which is bound to bring more or less changes to the existing pattern of the global automobile manufacturing industry. The extent and intensity of this change remains to be seen.
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