The Russia-Ukraine War: How it will affect the Automobile Industry

What is going on in the Russia-Ukraine War?

At present, the Russia-Ukraine war is in a very hostile situation. As the Russian forces have invaded Ukraine with the idea of a final conclusion in favour of their country as the ultimate goal, the atmosphere at not just these two countries, but also the entire world is in a state of horror. The Russian troops had arrived at the borders of Ukraine since November 2021 and have been waiting for the final go-ahead from President Vladimir Putin, which they received on the 24th February 2022. Russia’s demands are based on security reasons, they want that neither Ukraine nor other nations formerly belonging to the soviet union must be involved in NATO (North Atlantic Treaty Organization) and that Ukraine must be demilitarised. With a complete set of demands, there have been diplomatic talks between Russia and Ukraine for months now which have not yielded any fruitful outcomes and thus, the world is witnessing the Russia-Ukraine war. As every war does have adverse effects upon life, this war shall have a major effect on the automobile industry globally. Let’s delve further into the impact of the Russia-Ukraine war on automobiles.

Impact of the Russia-Ukraine War on Automobile

1. Will Production reach a standstill?

A large number of key automakers globally hail from Europe, and they used parts and supplies which were generally supplied by Ukraine, which is now going to take a lot of time considering the Russia-Ukraine war situation and how they get back to business post-settlement. As a matter of fact, there are around 49 production sites for German automakers which are located in Russia and Ukraine and thus the entire cycle of production is nearing a standstill. Volkswagen has already stopped building its ID.4 electric vehicle and many more are soon to follow suit as numerous factories are shutting down due high shortage of raw materials as well as access to facilities in these affected regions. With a large number of economic sanctions being laid on Russia in order to control the situation of war among the countries, several companies such as Volkswagen, Renault and Nokian Tyres have expressed plans of either shutting down or moving operations under the prevailing situation thus making the production of automobiles in itself a fairly difficult task to proceed with as long as the Russia-Ukraine war does not cease. 

2. How will the prevailing semiconductor shortage be affected?

The world has already been crippling under the semiconductor shortage due to the Covid – 19 pandemic which had entirely slowed down production & sales. Now that the automobile industry is finally getting back on track, the present hostile situation in the Russia-Ukraine war will further worsen the shortage of semiconductors in turn affecting entire production. Russia and Ukraine are both significant exporters of the raw materials required for the manufacture of semiconductor chipsets and with them being ruled out, it will be far difficult for even the countries with advanced technologies to be able to produce the chips to enable vehicle production levels to get back to normal. Russia alone has the major share of 45% palladium globally which is a key component for making the memory and sensory chips in vehicles. Intel, the chip manufacturer for PCs has shown interest in setting up a plant in India for producing semiconductor chips however that is another process that shall take years to materialise. For newer companies to enter the production of semiconductors and begin their operations at full scale will require a long amount of time which will heavily burden the automobile industry post the Russia-Ukraine war. 

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Russia Ukraine War

3. The fuel price upsurge

Russia and Ukraine are not just producers of raw materials and semiconductors, but also of ample important metals and gases, which has, in turn, led to a surge in fuel prices. While crude oil was priced at $68.75/barrel on the 1st December 2021, today, as we are witnessing the Russia – Ukraine War, the price has gone well over $100/barrel which is a seven-year high for crude oil prices. With prices of oil and gas skyrocketing, this greatly impacts the entire transport industry whereas a chain everything starts getting a price hike. Transportation of raw materials, finished goods, and all logistics will cost higher thus, in turn, making the entire profit margin negligible for automakers and pushing them towards an increase in their own prices. Countries could be facing an approximate 10% increase in fuel prices as well as the difficulty will be found in its availability due to the numerous trade sanctions imposed upon Russia to limit the impact of the Russia – Ukraine War. OPEC (Organisation of Petrol Producing Countries) shall be discussing how better to tackle the problem of rising fuel prices in the near future. 

4. Will vehicle prices increase post the war?

The automobile industry has faced among the most testing times in history as we experience the Russia-Ukraine War. With the scarcity of semiconductors and various raw materials required for the production of vehicles, the ever-rising fuel prices contribute to an increase in the entire chain of products. Vehicle prices are most certainly due to be affected. Every manufacturer is facing a big crunch for profits. In fact, the car dealers have made more sales during the deadly second wave of covid-19 than in the current scenario thus highlighting how fragile the automobile industry has become. Sales are immensely down, operational costs are not being matched to the incomes, and every single amount which dealers can secure will be a big boon, hence one can expect nearly every automaker to introduce price hikes, across all their offerings to provide sustainability to their company post the Russia-Ukraine War. 

Russia-Ukraine War
Source: Livemint

Our Word

In the words of Mahatma Gandhi, “An eye for an eye makes the whole world blind.” Today, the tense situation at the Russia-Ukraine war has had a major impact on the entire world. Businesses have been struggling to revive post the pandemic and now with Russia invading Ukraine, the two highly vital countries for the automobile industry have been damaged. There is a great struggle for raw materials, the severe shortage of semiconductor chips as well as factories being shut down, it is undoubtedly among the most difficult times the world may have ever seen. How well will the automobile industry be able to recover from these major setbacks from the Russia-Ukraine War? Only time shall be able to tell. Until then, all we can do is pray for this time to pass, for peace to prevail and for operations to be back to normal as soon as possible.

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