Paris – “Al-Quds”.com – (AFP) – The first effects of the war in Ukraine have begun to appear in the auto sector, with factories in Russia halting and production slowing in Europe, and the situation may worsen further as Moscow continues its military offensive.
As sanctions began to affect banks and logistics, production began to slow in Russia, and AvtoVAZ, the first car group in Russia and a subsidiary of the French Renault company, announced Thursday the suspension of work in its factories for four days “due to a supply problem in electronic components” that car companies have been suffering from since the beginning of the year 2021.
Work will also cease at the vast historical site of Togliatti (south), which manufactures Lada cars, while the Renault plant in Moscow, which produces SUVs for the local market, has been closed since February 28.
Also, the Korean Hyundai-Kia group, the second in terms of sales in Russia, suspended its plant in St. Petersburg until next week, explaining that the suspension of work was not related to the dispute but to a lack of components.
With the outbreak of the conflict, car sales were also suspended in Ukraine, which has a small market that recently moved away from Russian cars to European and Asian companies. On Thursday, Russian forces arrived in the vicinity of Zaporozhye (southeast), where the country’s only car factory and the largest nuclear power plant in Ukraine and Europe are located.
The Russian market, which is still under-equipped, was promising for foreign car companies with the fall of the Soviet Union, and they set up assembly plants in it to avoid heavy import taxes.
And in May 2021, Elon Musk, the owner of Tesla, announced during a ceremony in the Kremlin that he might study a project to establish his fourth factory in the world in Russia, at a time when the electric car market is still in its infancy in this oil-rich country.
The market had seen a breakthrough, but it collapsed in light of the financial crisis in 2009, and then it took a severe blow with the imposition of economic sanctions on Russia for its invasion of the Ukrainian Crimea in 2014.
1.5 million cars were sold in Russia in 2021, which is equal to sales in Italy.
In an analysis published by the Automotive Research Center in Duisburg, Germany, expert Ferdinand Dudenhofer pointed out that Russia remains a “dwarf in the field of cars,” explaining that only 5% of the cars sold were made with Russian technology, while the rest of the cars depended on foreign companies.
Toyota, Volkswagen, BMW, Mercedes, Volvo, Jaguar and Ford also announced this week that they were suspending their production and delivery work in Russia until further notice, citing logistical problems and the “current geopolitical situation.”
Are Chinese companies replacing Western companies in Russia? “Chinese companies were basically gaining market shares by exporting cars to them, and this crisis may present an opportunity, unless the penalties they are exposed to are significant,” explains Felipe Muñoz of Gatto Dynamics.
Dudenhofer believed that “China may enhance its loans and aid to Russia, which will make Russia orbit in China’s economic orbit.” In this case, he expected the market to decline to 1.1 million cars in 2022.
Without China’s intervention, it might drop to 800,000 cars, a level similar to 2015, which would put Russia behind Spain and Mexico.
The war is slowing car production in the West as well, and the factories of Wolfsburg, the cradle of the Volkswagen Group, will remain shut down during the week of March 14 due to a lack of supplies from Ukrainian suppliers.
In addition, the high cost of raw materials and energy, especially gas, as well as oil and electricity, may increase the costs of producing cars for all companies.
On the other hand, potential customers may be reluctant to buy cars at a time when companies are waiting for the market recovery to improve their profit margins and fund the transition to electric cars.
“During a crisis, people change their minds regarding buying a car, or put it off,” said Felipe Muñoz. This hesitation increases if the crisis takes on a regional dimension.”
