Rising oil prices, chip production cuts, and shifting factory production lines Will the Russian-Ukrainian conflict change the auto industry?

Reporter Gong Mengze

The impact of the global industrial chain due to the Conflict between Russia and Ukraine is continuing to appear. According to the "Securities Daily" reporter observed, as the manufacturing hub and important market of the automobile industry, multinational car companies including Volkswagen, Toyota, Renault-Nissan and Stellantis have set up factories in Russia, affected by local conflicts, a number of multinational automakers have decided to stop exporting vehicles to Russia, and at the same time, multinational car companies in Ukraine have announced the suspension of work and production.

On March 2, GM announced a moratorium on auto exports to Russia. GM said in a statement that "there are risks in the company's supply chain and efforts are being made to mitigate the potential risks to its business and employees." In addition to General Motors, Volvo Cars also said on March 1 that it would suspend the export of vehicles to Russia.

In addition, Volkswagen's two plants in Germany suspended production of the ID. series of electric vehicles due to the supply of parts from Ukraine, and Renault Group also suspended production lines in Russia this week. As of March 2, brands including Audi, Skoda, Porsche and Jaguar Land Rover have announced the suspension of new vehicle deliveries to the Russian market.

"The reason why the mainland automotive industry has had difficulty exporting in recent years is that overseas target countries often encounter economic sanctions from Europe and the United States. Taking Iran as an example, after its exclusion from the International Settlement System of the Institute of Financial Telecommunications of Global Interbanks (SWIFT), the mainland's exports to Iran plummeted by 99%, and the overall automobile export loss was nearly 400,000 vehicles per year, a huge loss. Cui Dongshu, secretary general of the National Passenger Car Market Information Joint Association, told reporters.

When asked whether China's auto exports to Russia will suffer similar losses to Iran, Cui Dongshu believes that there are uncertainties. "It should be better, after all, border trade and other flexible operations are our advantage." At the same time, he pointed out that car companies should respond flexibly, protect their own interests, and achieve a balanced development of China's automobile exports.

Mainland car exports or welcome new shocks

Swift sanctions have had a huge impact on the auto trade

In terms of overseas exports, today's Chinese car companies are making great strides. According to data from the China Association of Automobile Manufacturers, in 2021, mainland automobile exports exceeded 2 million units for the first time, reaching 2.015 million units, accounting for 7.7% of total automobile sales, an increase of 3.7 percentage points over the previous year. In this regard, Fu Bingfeng, executive vice president and secretary general of the China Automobile Association, said that due to the recovery of global automobile consumption, the transformation and upgrading of Chinese brands and other factors, it is expected that the growth rate of mainland automobile exports will be about 20% in 2022.

In fact, although Russia is not the most important overseas market for mainland car companies to export, it occupies an important position. According to the data of the General Administration of Customs compiled by the China Automobile Association, in 2021, Russia ranks third in terms of vehicle export volume; in terms of export value, Russia ranks fourth.

The head of the overseas business department of the independent brand, who did not want to be named, told reporters that although there is no impact on key components and raw materials for automotive chips. However, with the escalation of SWIFT sanctions, it will inevitably affect the exports of Chinese car companies. "Now more than 10 Chinese car companies have launched operations in Russia and Ukraine, and Great Wall Motors, Chery and Geely have built factories in Russia and achieved good sales." said the above-mentioned person.

According to the reporter's understanding, in 2018, the United States and europe imposed sanctions on Iran, and the impact of this measure is very serious. According to the data, the mainland exported 360,000 vehicles to Iran in 2017, and after the introduction of sanctions in 2018, the number of exports quickly decreased to 190,000 vehicles. Since then, from 2019 to 2021, export vehicles have continued to operate at a low level, with only 1524, 1797 and 2157 respectively.

"After Iran was kicked out of the SWIFT system in 2018, China's car exports to Iran lost more than 99%, less than 1% before the sanctions. The loss of 360,000 vehicles is also a loss of nearly 2% of China's automobile production. Cui Dongshu said that the main increase in mainland automobile exports in 2021 has shifted to Chile, Australia, Russia and other countries.

Oil prices have risen, chip production has been cut, and factories have shut down

The Russian-Ukrainian conflict may deeply plague the recovery of the automobile market

As we all know, today's automobile industry has evolved into a global industry, and China, as the world's largest automobile market, the Russian-Ukrainian conflict will inevitably invade Chinese auto companies and the domestic car market.

First and foremost is the rise in oil prices. Affected by the Conflict between Russia and Ukraine, global oil prices have soared, and domestic refined oil prices have risen accordingly. According to the rules of domestic refined oil price adjustment, a new round of refined oil retail price adjustment window will be opened again at 24:00 on March 3, and it is expected that the oil price increase will be the fourth increase in 2022.

In terms of export sales, according to data released by the European Business Association, the sales of Chinese brands in Russia in 2021 will be 115,700 vehicles, accounting for 7% of the Russian market share. In terms of specific brands, the Chinese car companies with large sales scale in Russia and Ukraine are mainly Great Wall, Geely and Chery. According to the statistics of the China Automobile Association, the sales volume of Great Wall, Chery and Geely in Russia in 2021 reached 39,100 units, 37,100 units and 24,600 units, respectively.

So, what impact will the Russian-Ukrainian conflict have on autonomous car companies? Great Wall Motor Securities Said that production and sales at the Russian plant have not been affected. However, the company admitted that Great Wall Motors' export business to Ukraine will be affected in the short term.

According to industry analysis, since the previous conflict mainly occurred in Ukraine, the impact on production and sales in Russia was small, but in the context of economic sanctions, the impact on the supply of key components should not be underestimated. Renault's Russian subsidiary said on February 25 that strict border controls had caused shortages of parts and components and transportation difficulties, and the company would shut down its Russian automobile assembly plant; Finnish tire manufacturer Nokian Tire also said that it was moving some key product lines out of Russia.

In terms of chip manufacturing, the rare gas neon required for the production of chips, up to 70% of the global output comes from Ukraine, russia is an important source of raw material metal palladium, if the supply of the above raw materials is limited, it will directly lead to chip production capacity reduction, exacerbating the global core shortage crisis. In this regard, Cui Dongshu remained optimistic: "At present, the rare gas inventory of global semiconductor companies has been used normally for 6 months without problems. Under the impact of the previous epidemic and other factors, the industry's supply capacity has been greatly improved and improved, and most chip companies have built a diversified supply chain system, so the impact of the Russian-Ukrainian conflict may not be so intense. ”

It is worth mentioning that for the automotive industry, which has experienced the pain of more than a year of lack of "core", many automotive companies that have benefited by the ability to penetrate upstream of the supply chain (cooperation with chip factories and fab tier suppliers) are considering continuing to extend upstream and including the risk of raw materials in the consideration of supply chain risks, thereby further strengthening the anti-risk ability of enterprises.

(Edited by Tseshandan)