Russia-Ukraine war places light vehicle production at risk


With Russia-Ukraine war will come much more reminders of the fragility of
the world’s automotive supply chains. The March gentle automobile
production update from S&P World Mobility (previously the
automotive crew at IHS Markit) is probable to downgrade its 2022 auto
generation forecast by 2.6 million units (i.e., to 81.6 million).
The downgrade decomposition of gentle car or truck generation will
broadly comprise just underneath 1 million models from lost need in
Russia and Ukraine and the remainder split among 1) worsening
semiconductor lack challenges, and 2) decline of Ukraine-sourced
automotive wiring harnesses and other elements respectively. In
addition, the full decline of Russian palladium is a tail risk
with the probable to turn into automotive industry’s biggest supply

Pent-up light automobile demand from customers decreased by about one particular third

Pre-Ukraine invasion on 24th Feb, the global automotive field
experienced presently put in around a 12 months beneath capacity constrained
situations, with (we estimate) pent up purchaser need up to 10
million models (or 12%) over this year’s achievable light car
production. The sudden reduction of economic self-confidence (by using significant oil
and uncooked product price ranges, weak fairness markets, and tightening
curiosity charges) is dampening the need of light-weight autos and could
now lessen that shortfall by approximately just one third – however significant
pent-up need remains.

Automotive supply chain continues to be the constraining element

When the macro problems are important, the automotive provide
chain (and not fundamental shopper desire) will proceed
to set the higher limit for light motor vehicle unit sales in the medium
phrase. The essential crunch points weighing on light-weight car or truck creation
levels submit invasion fall into two broad classes: Semiconductor
elements offer (specifically by way of Ukrainian neon fuel and Russian
palladium), and electrical wiring harness sourcing.

Professional material outages could curtail semiconductor
scarcity recovery

Semiconductor provide difficulties are worsening on two fronts:
Initial, through neon gasoline creation disruptions. Ukraine’s companies control
about 50 % of higher purity neon fuel provide to the semiconductor
business, the place the ingredient is employed in lasers that etch styles
onto chips. Our channel checks advise immediate dangers are very low
thanks to semiconductor makers holding ample neon gas
stock, but visibility is inadequate. The 2nd obstacle is
availability of palladium, used in semiconductor plating and
finishing. In an supplemental destructive twist, China COVID-19 circumstances at
a 2 calendar year large are triggering quarantines and plant closures in
northeastern producing hubs together with Shenzhen and Changchun.
All of the over raise the danger of losses from ‘stranded’ chips,
i.e., semiconductors for which the ‘right’ auto cannot be developed due
to other constraints.

Ukraine automotive wiring harnesses challenging to

Our channel checks advise Ukraine-created automotive wiring
harnesses were being probable destined for all-around .5 to 1 million vehicles
before the Russia-Ukraine war took spot. These automotive
harnesses comprise complicated and manually made assemblages of
cable. Even though some twin sourcing arrangements exist, for the most
aspect switching will be tough thanks to by now-constrained harness
ability in and all-around Europe. Manufacturing relocations could get 3
to 10 months owing to wait around situations on equipment and multi-thirty day period personnel
schooling moments. Almost 50 % (45%) of Ukraine-designed automotive
wiring harnesses are normally exported to Germany and Poland,
putting German carmakers at superior exposure. Our investigation indicates VW
is most uncovered (via Leoni, Sumitomo, and other suppliers),
adopted by BMW. On the moreover aspect, after ramped up – dropped creation
from automotive harness suppliers could be recovered promptly into
late 2022 and past.

Palladium: Following ‘black swan’ applicant

Although small probability as items stand, palladium has the
potential to come to be the automotive industry’s biggest source
constraint. Russia generates 40% of the world’s mined palladium
in accordance to United States Geological Survey (USGS). Around two
thirds of palladium use is in motor vehicles, where by it is the active
component in catalytic converters for exhaust aftertreatment. If
Russian palladium source ended up out of the blue interrupted (thanks to a
western boycott, or Russia halting supply), production of all
cars working with these sourcing (like hybrids) could likely
cease. Whilst platinum is an alternate component, it is in the same way
costly and also mostly Russia-originated. Substitution of any
form is a regulatory minefield since structure modifications require
regulatory re-homologation, which can acquire months. We do not
at the moment include key palladium disruptions in our light-weight
auto output forecast base situation.


Posted 15 March 2022 by Demian Flowers, Automotive Financial Analyst, S&P Global Mobility&#13


This write-up was printed by S&P World Mobility and not by S&P World Ratings, which is a individually managed division of S&P World-wide.