Ukraine invasion already taking its toll on the automotive supply chain

Toyota will halt production at its Russian factory, while vehicle imports into the country have also stopped indefinitely due to supply chain disruptions. Toyota is Russia’s top-selling Japanese brand.

Automakers, with their global reach, complex supply chains and millions of employees, are a prime example of how the war in Ukraine could reshape international commerce, say The New York Times. The war will force all companies to reckon with their exposure to an increasingly hostile political climate, analysts say. After trade wars and the pandemic exposed the acute vulnerability of global supply chains, the conflict will add to the pressure that corporations now face to manufacture closer to home and reduce the risk that turmoil in a faraway place will throw their operations into chaos.

Ukraine’s automotive sector is mostly located in the western part of the country, with clusters predominantly focused on the manufacturing of wiring and cables, and production for the aftermarket, says the European Association of Automotive Suppliers.  Seven European and several international suppliers have manufacturing facilities in the country. In 2021, imports of auto parts into the EU from Ukraine totalled €23.3 million, and given the clear focus on wiring and cables, we are seeing short-term disruptions, as recently announced by Volkswagen and Skoda. Exports to Ukraine totalled €855 million, making it the 42nd export destination for EU automotive suppliers.  

Russia has a significant automotive sector, employing around 600,000 people, roughly 1% of the country’s total workforce. Several OEMs have a strong presence in Russia, mainly Hyundai and Kia but also Stellantis, Renault and Toyota, with 34 automobile assembly and production plants in-country. More than 30 European suppliers have facilities in the country and foreign direct investment by European suppliers between 2010 and 2021 totalled €2.3 billion. Russia produced 1,767,674 vehicles in 2018, ranking 13th among car-producing nations, and accounts for 1.8% of the worldwide production.

Ukraine and Russia play a role in the downstream automotive supply chain.

29% of steel imported into the EU comes from Ukraine. It is also one of the largest suppliers of a number of noble gases used in the production of chips, particularly the neon used in lasers that etch features onto chips. According to an insider quoted in the FT, Ukraine is responsible for 25% of global neon supplies. Further, Russia represents:  

• 9% of primary aluminium EU imports 
• 42% of semi-finished steel EU imports 
• 42% of palladium supply (85% of palladium produced is used for automotive catalysts) 
• 12% of platinum supply (39% of platinum produced is used for automotive catalysts) 
• 9% of rodium supply (91% of rodium produced is used for automotive catalysts)  
• 11.2% of the world’s nickel production used in vehicle batteries 

 

Transport of goods and border controls 

Export restrictions and controls are causing issues as not only customs authorities but also freight forwarders will have to make themselves aware of the new restrictions and thousands of different products and technologies traded between Russia and the EU.  

The crisis is also resulting in disruption of global transport and its full impact is yet to be felt in coming days. Polish transport companies alone employ 103,000 Ukrainian drivers, who either made their way to the battlefield or are seeking to bring their families to safety. Some truckers have no longer been able to cross borders, leading to separation of trucks and trailers, as the trailer crosses the border and continues with another truck/driver.  

The train lines for cargo between the EU and China (through Ukraine and Belarus) are currently disrupted. It is important in both directions for imports of components and raw materials as well as exports of finished goods.  Air transport is also blocked. The closure of Russian airspace to Western airlines has led to EU logistics companies to stopping shipments there until further notice. Shipments to Belarus and Ukraine have also been affected.