The topic of war and peace, everyone has their own cognition. For the automotive market, the Russian-Ukrainian conflict may trigger sustained changes in the short, medium and long term.
I am now thinking that the process of electrification and intelligence is bringing subversive innovation to the traditional European automotive industry and auto parts industry, how big is the scope of this economic impact - when a large enough industrial development is involved in the national economy and people's livelihood, this wave of new energy vehicle subsidies in Europe before this wave actually promotes the public's awareness of buying new energy vehicles, which is for traditional car companies to transform into new energy.
Part 1: Russian market and raw materials for automobiles
(1) The state of the Russian market
Russia has a population of 146 million, the auto market once peaked at 2.94 million units in 2012, when many car companies expected the Russian market to become the largest light car market in Europe; however, due to the crimea event in 2014, it fell back to a low of 1.43 million vehicles in 2016; since then, government incentives have supported the market to some extent; in 2021, due to parts shortages, tight supply, the recovery is much weaker than expected - the total annual sales volume is 1.67 million, An increase of 4% compared to 2020.
Figure 1 Vehicle sales in the Russian market
The scale of car sales in Russia is actually not very important for the global volume, but it still has an impact on individual companies. From the perspective of a single brand, the Russian domestic giant AvtoVAZ accounts for the majority, which is a joint venture with Renault, and a considerable part of the parts come from abroad. Although Chinese car companies export more to Russia, in fact, the overall sales volume in Russia is not particularly large.
Figure 2 Car sales in Russia in 2020-2021
(2) It has a certain influence on modern Kia
Hyundai Group sold 373,132 vehicles in the Russian market in 2021, accounting for the largest market share, of which Hyundai accounted for 10.3% of the market share and Kia accounted for 12.3%. Hyundai established a plant in St. Petersburg in 2010 and purchased a former General Motors plant to renovate the production of Hyundai Tucson, Palisade and Kia Sportage and export to North America and other parts of Europe, where Hyundai-Kia currently produces more than 230,000 vehicles a year in Russia.
In 2021, it will sell $2.5 billion of cars to Russia, along with $1.45 billion in auto parts, which previously accounted for 44 percent of South Korea's annual exports to Russia.
Figure 3 The modern situation in Russia, together with Kia, is not small
(3) The impact on the supply of raw materials
Russia is one of the largest suppliers of several major metals used in automobile manufacturing, and in terms of proportion – Russia exports 40% of the palladium used in catalytic converters to the world; in addition, platinum accounts for 15.1% and nickel accounts for 5.3%. In terms of practical impact, in addition to Russia, South Africa and Zimbabwe also produce a lot of palladium, and the current price has climbed to just over $2400, which will increase the average cost of new cars by $150, while the average cost of SUVs and pickups will increase by more than $200.
Figure 4 Proportion of Russian raw material exports
Therefore, from the perspective of short-term one-time shock, the biggest impact on the automotive industry is Renault and Hyundai, and the impact on the manufacture of internal combustion engines is the increase in the price of metal supply required for catalysts, and the price of nickel in batteries will also rise, but these are short-term one-time fluctuations.
Part 2: Medium- and long-term volatility
(1) Europe's energy crisis and green transition
The development of green energy in Europe is the right path in many ways, but how can the right path be followed? The balance between ideal and reality is important. Logically, soaring energy prices in Europe amplified inflationary pressures, with energy sector inflation rising sharply by 17.4% in the summer of 2021, causing inflation in euro zone economies to reach a 13-year peak of 3.4% in September 2021 and rise above 5% in December. Natural gas accounts for 22 percent of Europe's electricity generation, and soaring prices are shifted to consumer bills. EU electricity benchmark electricity contracts doubled in 2021, with wholesale electricity prices soaring to around 7.5 times the 2010-2020 average.
Figure 5 TTF gas prices in Europe
If the price of electricity continues to be high, it is actually a very difficult thing to develop electric vehicles, and when the overall transportation sector is fully switched to electric drive, the source and price of electricity will cause new problems. From the overall scope, electric vehicles in Europe in 2021 are mainly around several core countries in Western Europe to achieve high growth. In Eastern Europe and Southern Europe, the subsidies needed to transform electric vehicles are not clear where the money will come from. I tend to think that it is difficult for Europe and China to leapfrog to the era of pure electric power in one step, and under various games, the importance of hybrid models is really on the rise.
Figure 6 The development of hybrid and plug-in hybrids is an important step, and Europe cannot achieve leapfrog development
(2) Batteries and raw materials
In the development of electric vehicles in Europe, it has been around two questions - can it manufacture batteries independently, and how to supply raw materials? These two problems determine whether the battery can develop in the next generation supply chain. Such a large investment in Europe needs to consider geopolitical constraints. Such a large production capacity and the continuous demand for battery raw materials make "reducing the price of batteries" a difficult goal to achieve.
Figure 7 Production layout of battery cells in Europe
This is why we need to look at this development path in a long-term perspective, but it is difficult to determine the endgame, especially the social problems involved in a large number of industrial developments - if the changes in the short term bring a lot of unemployment, this road is difficult to become a reality. The possible path is to continue to sprinkle a lot of money to establish a sufficiently large battery industry chain (and chips) before realizing the transition from smart cars.
Figure 8 Battery materials in Europe
brief summary:
I personally feel that many things need to be looked at in a longer dimension, and now the supply chain and upstream resources are put in a very important position, and the replacement and replacement in the industry is more market-oriented means.
Figure | network and related screenshots
About author:Zhu Yulong, senior electric vehicle three-electric system and automotive electronics engineer, author of "Automotive Electronics Hardware Design".
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