How the Russia-Ukraine Conflict will Impact Car Companies

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Russia’s activities in Ukraine could cut vehicle production operations by millions of units this year. Russia plays a significant role in the automobile industry as the largest producer of rare earth metals like palladium which is highly essential for manufacturing semiconductors.

Similarly, Ukraine is a crucial economy in the automobile industry as it is one of the largest producers and exporters of neon gas, an essential ingredient in the manufacture of semiconductors.

In particular, automobile production in local Russian firms is expected to feel the most significant near-term effects since companies in the Eastern European economy have started suspending their operations. Stakeholders in the industry have warned that the global sphere should expect higher risks of ripple effects in the entire automotive sector if the battle continues for long.

The Ripple Effect on Car Companies

In an interview, Jeff Schuster, LMC Automotive’s president of global forecasting and the Americas, noted that the ripple effect on the entire global automotive value chain would strongly depend on how long the war will go on. Similarly, Jeff noted that the sanctions imposed on Russia by the West would play a crucial role in the disruption.

Russia’s special operations in Ukraine has already created unexpected supply chain challenges for essential automobile parts like wire harnesses which act as the wiring system of a vehicle. This is already compounded by the pressures on the system experienced by COVID-19.

Similarly, there are tendencies that the conflict may further disrupt the current supply chain limitations of essential car parts like semiconductor chips and catalytic converters that use rare gases and materials from Ukraine and Russia, respectively.

The crisis could also escalate the currently worsening inflation and propel vehicle prices to a higher mark despite the current record-high charges. The end consumer could suffer the most significant blow if this happens.

Consumers in the United States are already experiencing the immediate ripple effects of the crisis in Ukraine. The national average for gas hit the highest figure ($4.009) on Sunday- the highest since July 2007.

However, the European auto market will feel the consequences of the conflict more quickly than the other markets. Currently, automakers in Europe like Mercedes-Benz and Audi have revealed their intention to minimize their production output at plants because of the ongoing parts disruptions, particularly wire harnesses.