Expect delays: Large car factories in Europe shut down due to war

The Israeli car market is preparing to absorb the “fallout” of the crisis in Ukraine. The industry expects that the delivery times to Israel of some of the requested vehicle models, which currently stand at two quarters, may be significantly extended. At the same time, the industry is preparing for a sharp rise in prices as a result of the war.

Raw material shortages and significant price increases

In recent days, a number of car importers have received notifications from overseas manufacturers of expected delays in the full supply of vehicles. The vehicles were supposed to be delivered starting next quarter, but in practice they have not yet entered production.

As a result, delivery times for customers, including those who have already received a date, may be postponed. In addition, importers have been notified by carmakers that they need to “prepare for a very significant, possibly double-digit, price increase in the event that the crisis in Ukraine and its consequences are prolonged.” The main damage is expected to be in the supply of electric vehicles, whose demand in Israel and around the world is rising sharply due to the expectation of a further rise in fuel prices at stations.
The crisis in Ukraine has hit the supply chain of key components for the automotive industry in Europe and abroad in recent weeks, leading to a shortage of essential raw materials and a sharp rise in production inputs.

The first to report significant damage to production in the last two weeks are German automakers, some of which have significant dependence on supplies from Russia and Ukraine. Last weekend, the German Automobile Manufacturers Association (VDA) announced that “it is difficult to give a reliable forecast at the moment, but significant disruptions to vehicle production in Germany are expected.” The union said in a statement: “Manufacturers and suppliers are working around the clock to compensate for the supply chain disruptions and failures, and to find alternative sources of supply.”

One of the immediate problems is a disruption in the supply of “braids” of the power cables to the vehicle – the cluster of power cables and data communication, which connect the various components of the vehicle. They are manufactured for many car manufacturers in a major plant in Ukraine and now its operations have been shut down. According to the VDA announcement, “Cable braids are a complex component for manufacturing, which is sometimes manufactured individually for each vehicle model. There are almost no pre-made stocks of this component.”

Continuous damage to the production of electric vehicles

This is not the first time in the current decade that the industry has experienced disruptions. Also during the corona outbreak, in early 2020, almost the entire global automotive industry was shut down for an extended period, due to a shortage of power “braids” produced in China and Korea.

There are currently more than 20 foreign companies operating in Ukraine that supply parts and components to the automotive industry, which are manufactured in almost 40 factories, most of which are shut down. In addition, there are 43 factories of Western car manufacturers and suppliers in Russia, whose activities have been or may be harmed.
At the same time, the global automotive industry is currently experiencing a very sharp rise in the prices of raw materials, which are essential for the ongoing production of vehicles. The rises began as early as last year but have gained significant momentum since the onset of the crisis in Ukraine.

Among other things, the price of nickel, which is widely used in the production of vehicles in general and batteries for electric vehicles in particular, jumped almost threefold this week and trading on the London Stock Exchange was stopped. The industry estimates that if nickel prices remain this way over time it will continue to hurt the production of electric vehicles worldwide, which is already suffering from excess demand.

The damage to the supply of electric vehicles at the present time is particularly problematic due to the surge in demand for such vehicles worldwide, as a result of a dramatic rise in fuel prices at stations. In Germany, for example, this week the price of a liter of petrol at stations has stabilized at around 2 euros – an all-time record – and in the UK it is expected to reach close to 2 pounds per liter. In Israel, too, there is currently an increase in the interest of the private and business sector in purchasing an electric vehicle. This is due to the estimate that the price of a liter of gasoline at stations will climb to almost NIS 8 per liter next month, if world oil prices remain at their current level.

The price of palladium, a rare metal used to make catalytic converters in gasoline vehicles, has jumped by tens of percent due to the fact that Russia and Ukraine supply about 45% of the world’s global consumption of the metal. In addition, an indirect impact on the global production of chips is expected. This is because Ukraine and Russia are among the world’s largest producers of essential materials for the production of chips such as neon gas (70% of world supply), nitrogen (40% of world supply) and xenon (30% of world supply).

Production disruptions in Europe have already begun

The expected major shock in the automotive industry concerns fuel and energy prices for manufacturing plants and maritime transportation. The automotive industry worldwide is among the heaviest consumers in the industry and the sharp jumps in oil, coal and natural gas prices are expected to significantly increase automotive production costs. These costs are expected to pass on to consumers in the coming months. In addition, a significant increase in vehicle transportation prices is expected.

Meanwhile, production disruptions have already begun in Germany. This week BMW shut down production lines in Germany, Austria and “mini” factories in the UK and the Netherlands due to a shortage of “cable braids”. The Volkswagen Group also experienced production disruptions in both Germany and the group’s factories in Russia, which ceased operations as part of the economic boycott of the country. Volkswagen went on strike for an unknown period in one of its largest factories in Germany, due to a shortage of components and also Skoda, which manufactures in the Czech Republic, announced disruptions as a result of a shortage of key components. Mercedes has also announced a reduction in production at a number of its plants in Europe.

The automotive industry has not learned from experience

At the beginning of the year, it seemed that the stars were starting to get along for the international car industry and the Israeli car market. After two years of upheavals and disruptions in the supply chain, which led to a loss of car production worth nearly $ 200 billion, the outlook for 2022 was calm. Although there are still months of delays in the supply of vehicles, due to the shortage of chips, but according to forecasts they were supposed to moderate starting from the third / fourth quarter of the year with a return to full volume towards 2023.

The problem is that the auto industry probably did not learn from the experience, or was simply exhausted after the last two years. However, the current crisis has caught her unprepared. At the moment it looks like the “perfect storm”: oil prices hovering around $ 120 a barrel of oil; Production disruptions; Severe shortage of sea transport.

And of course, above all hovers the uncertainty of the results of the conflict in Ukraine that may include, among other things, a global shortage of fuel, potential for inflationary spin and what not. In short, car buyers and sellers alike are advised to fasten their seat belts, wear helmets and prepare for the airbag to inflate. 2022 will be very turbulent in the car market and the accident is inevitable.

By Editor

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