As the crisis in Ukraine escalates and President Joe Biden puts in place new sanctions targeting the Russian economy, there could be substantial collateral damage to the auto industry, including automakers and parts suppliers in the U.S., Europe and Asia, reports NBC News.
Russia’s role in the global market
Russia is one of the world’s largest suppliers of several key metals, including palladium and nickel, used in auto manufacturing around the world. It’s also home to a sizable manufacturing base, which includes a number of plants owned by foreign manufacturers like Stellantis, Volkswagen and Toyota.
With at least a quarter of the parts used in Russian-made vehicles coming from abroad — including from the U.S. — those assembly plants could have trouble continuing to operate while sanctions are in place, according to analysts and industry officials.
The impact of sanctions could also hit home. Russia is the world’s third-largest supplier of the nickel used in lithium-ion batteries, and it provides 40 percent of the palladium used in catalytic converters, which can be found in all gas and diesel-powered vehicles.
If Russian President Vladamir Putin retaliates against the West by cutting off palladium supplies, “automakers would have to find alternative supplies or they wouldn’t be able to build vehicles with internal combustion engines,” said Sam Abuelsamid, principal auto analyst for Guidehouse Insights, a research firm.
In mid-December, palladium dipped as low as $1,600 an ounce. On Wednesday, it had climbed to just over $2,400. Price increases like that could add $150 to the average cost of a new vehicle, and more than $200 to SUVs, pickups and sports cars with bigger engines.
The price hike
Automakers would have to decide whether to swallow the added cost or pass it on to consumers at a time when prices for new vehicles are already running at record levels, topping $45,000 in January.
If nickel supplies are constrained that could slow the production of the batteries used in electric vehicles and deliver a blow to a major initiative of the Biden administration — to have electric vehicles account for up to half off all new autos by 2030.
There are additional sources of nickel — Indonesia and the Philippines the two largest — but demand and prices have been growing and automakers could face the same challenges as with palladium, according to Abuelsamid.
Sanctions “predominantly (are) going to impact European automakers, and some Asians,” said Joe Phillippi, head of AutoTrends Consulting.
Russian automakers also have reason to worry
They depend on foreign sources for 25 percent of the parts needed to keep their own auto assembly plants running. One manufacturer, the Gaz Group, has publicly warned that it will have to halt production if sanctions are enacted. Gaz produces light- and medium-duty commercial vehicles, buses and automotive components for domestic and export markets.
Several foreign automakers also have a major presence in the heart of the former Soviet Union, and partnerships with domestic Russian companies. They include Euro-American automaker Stellantis — formed last year by a merger of Fiat Chrysler Automobile and PSA Group.
Among the European manufacturers operating in Russia, Volkswagen said in a statement, “The degree of impact on our business activities in the affected countries is continuously determined.”
America’s two largest automakers have been out of the Russian market for several years. Ford shuttered operations, including a plant in St. Petersburg, in 2019. General Motors began to pull out in 2015 and sold off its remaining stake to Avtovaz in 2019.
Now controlled by France’s Renault, Avtovaz said in a statement it is looking for alternative sources of supplies, such as semiconductors, but cautioned it is “premature” to predict how the crisis will affect the company.
One reason is that it remains unclear which of America’s allies will adopt the new sanctions. There is also concern in the industry that Russia’s allies could strike back.
“The big question is what China does,” Abuelsamid, the analyst, said. “If we put heavy sanctions on Russia, they might respond and cut us off from many of the things we need,” including circuit boards and other raw materials, such as the lithium needed for electric vehicles.
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Source: NBC News