The Russian-Ukrainian conflict, which affects chips, raw materials and even supply chains, has had a limited impact on China's automotive industry

Wen | Guo Huaiyi

Editor| Zhao Cheng

The automotive industry, which is highly dependent on the operation of global supply chains, is overshadowed. A number of research institutions pointed out in the report that the Conflict between Russia and Ukraine will exacerbate the further rise in the prices of semiconductors and some non-ferrous metals. So, what kind of impact will this conflict that may affect the global automotive industry chain have on China's auto industry?

Chip break "neon", China's opportunity is coming?

In 2021, chip shortages have become a problem plaguing China's auto industry. Problems such as production suspensions, production cuts, price increases and delayed deliveries plague every automotive company. CCTV has previously reported that the price of some chips has risen from the original tens of yuan to the current 2800 yuan. Some of the chips that have risen less have also doubled in price.

As an inert gas that is difficult to replace in the production of chips, Ukraine is the world's most important supplier of neon gas.

Market research firm Jibang Consulting pointed out in its report that Ukraine supplies nearly 70% of the world's neon gas. Although the proportion of neon gas used in semiconductor processes is not as good as other industries, it is still a necessary raw material, and if the supply is blocked, it will still affect the industry. Although the Russian-Ukrainian conflict will not cause production line disruptions in the short term to affect output, the reduction in the supply of neon gas may still cause prices to rise, and chip production costs may also rise.

However, in the view of Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers, the supply of neon gas may not be a particularly serious problem. He told Caijingqiche in an interview that Ukraine's neon gas exports are indeed very large, but Ukraine's neon gas is not irreplaceable, and the production of neon gas is not a card neck technology, so from the industrial chain, its current impact is limited.

According to Ren Lu, a special gas analyst, inert gases including neon gas are a by-product of the steel industry, and heavy industries such as steel in the former Soviet Union are huge, so the separation of related noble gases as a subsidiary industry has always been relatively strong. After the collapse of the former Soviet Union, it evolved into a situation in which Russia mainly carried out crude gas separation, and enterprises in Ukraine were responsible for refining and exporting to the world.

In addition, Cui Dongshu, secretary general of the Association, also expressed similar views.

"Now the world's largest steel producer is China, so as a subsidiary industry, the production of neon gas is not a card neck technology." Cui Dongshu told Caijingqiche that Ukraine's advantage may lie in the purification and cost of neon gas, but if the shortage of neon gas supply leads to an increase in prices, Chinese companies can fill the gap. So, this could be an opportunity for China to replace Ukraine in this area as the world's largest supplier of neon gas.

In addition to the supply of inert gases such as neon, Russia's non-ferrous metal supply has become another focus of attention. There is widespread concern that the Russian-Ukrainian conflict will further exacerbate the rise in raw material prices in the already high price of commodities.

The import of raw materials is controllable, and the export of the whole vehicle is difficult to estimate

On February 24, the first day of conflict between Russia and Ukraine, it also happened to be the Mercedes-Benz Group's 2021 earnings call. At that time, a reporter asked whether the Conflict between Russia and Ukraine would affect the production and supply of nickel ore in Russia. In this regard, the management of the Mercedes-Benz Group said: It is too early to predict this impact.

In fact, Russia occupies an important position in the supply of non-ferrous metals such as nickel, aluminum and copper. Soochow Futures pointed out in the research report that Russia's Norilsk Nickel Industry is the world's largest nickel producer, with an annual output of nickel metal accounting for about 10% of the global nickel supply, while the Russian pure nickel supply accounts for more than 15% of the global pure nickel supply. If the military conflict between Russia and Ukraine affects the export side of commodities, then nickel prices are likely to continue to soar.

Just last week, the price of LME nickel reached $25,170/ton, a new all-time high in nearly 11 years.

"Although the Conflict between Russia and Ukraine has lasted for several days, there is no feedback from car companies in this regard. Specific to China's auto industry, there are not many things imported from Russia, and there will be no fundamental impact on the industrial chain. Chen Shihua also stressed to Caijingqiche (ID: caijingqiche) that in recent years, enterprises in the upstream and downstream of the industrial chain are very concerned about the safety of raw material supply, such as lithium mines, and some companies are buying lithium mines overseas, just to ensure the security of supply.

Although imports of commodities, including nickel, have not yet been affected, the impact of some car companies on Russia's vehicle export business has become difficult to assess in this conflict.

Zhang Junyi, managing partner of Oliver Ypresity Consulting, told Caijingqiche that the short-term impact will be more serious for companies with operations in Ukraine and Russia, the most obvious of which is Great Wall Motors, which has factories in Russia. In addition, there are other companies that will also export some Chinese trucks to Russia.

According to the China Association of Automobile Manufacturers, from 2008 to 2014, Russia has been ranked in the top four of China's automobile export volume list, and from 2016 to 2019, the ranking has dropped slightly, and Russia is the third largest vehicle exporter on the mainland in 2021.

As for whether the Russian-Ukrainian conflict will have an impact on Great Wall Motors' business in Russia. The Great Wall told Caijingqiche that it would not comment.

Some analysts pointed out that Chinese brand cars are currently mainly exported in domestic assemblies, and the impact of the Russian-Ukrainian conflict is limited.

According to data from the Association of Passenger Vehicles, in 2021, China's vehicle exports to Russia reached 122,000 units, amounting to 1.97 billion US dollars, an increase of 187.6% and 177.2% respectively year-on-year. Among them, Great Wall Motor's business in Russia has developed the fastest.

In June 2019, Great Wall Motor's plant in Tula, Russia, was officially completed and put into operation. It is reported that the construction of the Tula plant lasted four years, with a project investment of 500 million US dollars and a planned production capacity of 150,000 vehicles. Official data show that in 2021, Great Wall Motors' sales in Russia exceeded 40,000 vehicles, an increase of 125% year-on-year, a record high. It ranks in the top ten of the overall car brand sales list in Russia and seventh in the SUV + pickup segment.

Chen Shihua believes that the conflict between Russia and Ukraine will definitely have an impact on exports, but the total amount is not very large. For companies, it is more important to pay attention to changes in exchange rates and international payments, because some Russian banks have been excluded from the SWIFT system (Global Banking Financial Telecommunication Association system), which may be the place to pay more attention. But overall, the impact of the Russian-Ukrainian conflict on China's auto industry is limited.