Written by / Ma Xiaolei
Edited / Tu Yanping
Design / Shi Yuchao
Source/Financial Times, Reuters; by Joe Miller, Pierre Briancon
Volkswagen CEO Herbert Diess has said that an ongoing war could have a bigger impact on the global economy than the coronavirus.
The Russian-Ukrainian conflict has lasted for three weeks, with supply disruptions leading to the suspension of production at automobile plants and rising oil prices that have led to frequent cases of gasoline theft at home and abroad. The epidemic, semiconductor shortages, and the Russian-Ukrainian conflict have become the three mountains that weigh on automakers.
On March 15, Tesla and BYD announced price increases on the same day as raw material prices continued to rise sharply. Unfortunately, when you decide to abandon new cars and move to the used car market, you may be pleasantly surprised to find that used cars have also increased in price.
Russia is a major exporter of used cars to Japan, and since February, even as the Demand for the Russian market evaporates, the average price of used cars in Japan has remained at a historic high. The fall in demand is far from balancing rising costs.
For the traditional auto giants who are busy with electrification transformation, the sudden situation brought about by the war is a new test for the company's ability to resist pressure.
Despite rising raw material prices, Volkswagen remains optimistic about the electric vehicle market. Arno Antlitz, the company's chief financial officer, said that despite the sharp increase in the prices of nickel, cobalt and lithium, the profit margins of pure electric vehicles are expected to be faster than that of fuel vehicles. Part of the reason is that raw materials for conventional cars are also on the rise.
Equally optimistic is Mercedes-Benz.
On March 15, the German luxury automaker's first U.S. battery plant opened in Alabama. CEO Ola Kaellenius said at the opening ceremony that even if the Russian-Ukrainian conflict increases supply chain pressure, the company will not cut spending on future electric vehicles.
Mercedes-Benz rival BMW, by contrast, is less optimistic.
On March 16, BMW lowered its company's 2022 automotive profit margin forecast due to the Russian-Ukrainian conflict. The company forecasts that the EBIT margin for its automotive division will be between 7% and 9%. Without the impact of this war, BMW aims to be 8% to 10%.
The impact of the war on car companies is both similar and different. Some enterprises are not deeply involved and can retreat from the whole body; while some enterprises are deeply mired in the quagmire and have no way to retreat.
Volkswagen moved to the Americas and China
Diess said it would consider expanding outside Europe if the Russian-Ukrainian conflict continues.
As the largest car manufacturer on the European continent, Volkswagen has been using wiring harness systems from Ukrainian suppliers. The war caused supply disruptions, but this less important component caused Volkswagen to stop production at its factory in Germany. Volkswagen HQ has formed a team of 150 people to find alternative suppliers.
"The extent of the war's impact is not yet inconclusive. But one thing is for sure, we have to consider making additional investments outside the U.S. and Europe. Dees revealed on March 15.
In order to bypass the supply bottleneck, Volkswagen has shifted production of 100,000 vehicles to the Americas and China, Dies said.
Because Volkswagen, like Mercedes-Benz and BMW, adopted a strategy of prioritizing the production of high-end models during the semiconductor crisis, they were able to achieve higher annual profits despite a significant reduction in car sales.
In 2021, Volkswagen's pre-tax profits exceeded 20 billion euros, almost double that of 2020 and even higher than 18.4 billion euros in 2019.
The profitability of the Porsche brand is far ahead within Volkswagen, with a profit margin of 16.5%, mainly due to the new high delivery volume in the Chinese market.
Volkswagen said it still plans to bring Porsche to market by the end of the year, use some of the proceeds to accelerate its electrification strategy and build six battery plants in Europe.
On March 15, the company confirmed that the establishment of a plant in Spain had entered the final stage of discussion. "We have already started site selection for a fourth plant in Eastern Europe," Dies said. ”
Separately, Volkswagen-invested Sweden Northvolt said it would build a third European battery factory in Germany, hoping to start production by the end of 2025, supplying 1 million cars a year.
Renault never got better
Compared to volkswagen, Renault is not so lucky.
Jean-Dominique Senard, chairman of Renault, has said the Russian-Ukrainian conflict will not affect the French automaker's recovery. But it was soon beaten in the face by the stock price, and in less than a month, Renault's stock price fell by 40%, and the market value evaporated by 4 billion euros.
Renault is the largest russian automaker and seller, with a market share of nearly 30%. The largest automaker in Russia is Avtovaz, in which Renault holds two-thirds of the shares and operates two Avtovaz plants, as well as one in Moscow that produces Renault cars.
The evaporation of 4 billion euros in market capitalization indicates that the market reaction is a bit overreacting. Last year, Renault's revenue was 46 billion euros, and Avtovaz contributed only 6%, valuing it at €3 billion on Renault's balance sheet.
Even if the situation in Russia and Ukraine continues to escalate, Renault will not be able to withdraw from the Russian market. Work can only be suspended temporarily, counting on the Avtovaz plant, which uses fewer imported components, to reopen in mid-to-late March.
There are two main reasons why Renault continues to maintain a long-term cooperative relationship with Russia.
First of all, Renault has 40,000 employees in Russia, and it is impossible to shut down the business and go away.
Second, France has been added to russia's list of unfriendly countries, which has warned that if companies controlled by more than a quarter of the unfriendly countries threaten to shut down their local operations, the Russian government will take over the companies and nationalize them.
And that's not all that gives Renault a headache.
A January 2019 corporate document showed that Alliance Rostec Auto, a joint venture between Renault and Rostec in Russia, rose to 100% in Avtovaz.
Rostec (Russian Technical State Group) was formerly a Russian defense giant. The company's CEO, Sergey Chemezov, is a close associate of Mr. Putin, and his name has appeared prominently on Western sanctions lists.
A local Newspaper in Russia has questioned why such a company could do business in Russia, where the French government holds a 15 percent stake in Renault.
In other countries, Renault could be implicated for its ties to the Russian military. The situation Renault faces may go from the initial "bad" to the "bad".
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