5 ways the Ukraine war is impacting automotive manufacturing

May 16, 2022Industry Trends

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The Ukraine war has had – and continues to have – a devastating impact on all those concerned, with hundreds of civilians killed by Russian troops and families across the nation forced to desperately flee the crisis into neighboring countries. Of course, nothing compares to the significant human cost of the conflict, however, it’s fast becoming clear that the Ukraine war is having a huge effect on not just those directly involved but industries across the globe. And those in the automotive industry can’t help but become increasingly aware of the ripple effect that’s coming from the Ukraine war and impacting manufacturers in our sector. 

Whether they’ve been forced to take action or have been heavily impacted for reasons out of their control, multiple key players across the global automotive industry are undoubtedly feeling the effects of Russia’s invasion of Ukraine. Sadly though, it’s now not a question of will the Ukraine war impact the automotive industry, it’s a question of how badly will the crisis impact vehicle manufacturers?

As experts in the automotive industry, the team at SnapCell explores five ways the Ukraine war is impacting automotive manufacturing.

Lack of parts from Ukraine-based suppliers

Just as we thought the industry was making a much-needed comeback (albeit, gradual) following a major shortage of semiconductors – triggered by the COVID-19 pandemic – the automotive supply chain has taken another blow as a result of the Ukraine war.

In fact, since the outbreak of war, a lack of wire harnesses – an integral part of any vehicle’s electrical system – seems to have taken over as the biggest supply chain concern for many automotive manufacturers. Ukraine has a total of 17 wire-harness facilities – and although some suppliers amazingly continue to make the products despite the war – the conflict is predicted to impact the building of thousands of vehicles over the first half of this financial year.

Volkswagen, BMW, and Porsche are among those who have already made cuts to the production of vehicles and reduced their output, in response to their struggling to get their hands on these vital wire harnesses. In fact, Volkswagen and BMW have actually been forced to shut down their German factories because they are no longer able to source wiring harnesses for their vehicles.

And it’s not just a decline in the production of wire harnesses that we’re witnessing. Ukraine supplies at least 70 percent of the world’s neon gas, which is critical to powering the lasers that are needed to make semiconductor chips. In fact, it’s the USA that will be hit hardest by the neon gas shortage, with almost all of America’s supply coming entirely from either Ukraine or Russia. This means, that just as we prepared to bid farewell to the strain the vehicle industry was already feeling from the ongoing semiconductor chip shortage, manufacturers are taking another huge hit, causing major disruption to automotive businesses across America and the rest of the world.

Manufacturers have cut off ties with Russia

Following the Russian invasion along with the imposed sanctions on Russia, multiple manufacturers have made the decision to cut off all ties with the country, suspending all business with them. Some of the key players to stand by Ukraine so far (or fear facing Western sanctions themselves if they don’t respond to the Russian invasion) include the likes of BMW, Jaguar Land Rover, Volkswagen Group, and Groupe Renault – to name but a few.

But with Russia being the eighth largest automotive market in the world – with more than 1.6 million vehicles sold in the country last year – the decision to stand by Ukrainians will no doubt come at a cost for automotive manufacturers though. 

We must of course remember that America’s two largest automakers already cut ties with the Russian market several years ago, with Ford shutting down operations in 2019 and General Motors pulling out between 2015 and 2019. 

Of course, there’s always the worry that Russia will retaliate against these sanctions. Russia is the world’s third-largest supplier of nickel used in lithium-ion batteries (essential for electric vehicles), and it provides 40 percent of the palladium used in catalytic converters, which can be found in all gas or diesel-powered vehicles. It can’t be forgotten that if Russia retaliates by halting supplies, automotive manufacturers will be forced to find an alternative solution – or they could be forced to stop the build of any vehicle with an internal combustion engine.

The freezing of Russian exports

Not only are some of the biggest brands in the industry refusing to sell vehicles to Russia, but most have also made the decision to stop manufacturing vehicles over there too – with Toyota, Ford, Hyundai, and Volkswagen announcing the temporary closure of their factories in Russia.

Not only stopping sales to Russia but also freezing the manufacturing of vehicles across the country will no doubt have a huge impact on the industry, with the latest figures showing that more than 1.5 million vehicles were produced in Russia pre-war. In fact, Russia is believed to have had the 13th highest vehicle production rate before the Ukraine invasion – and the closure of plants across the country will no doubt have a knock-on effect on the manufacturing industry worldwide. 

The global gas shortage

The average price of gas has risen to almost $6 in some parts of America over the past month (approximately around $2 per gallon more than in January), as a result of the Ukraine war – following the West refusing to buy gas from Russia. 

It’s important to note that with America only relying on Russia for eight percent of its oil, the USA is definitely not feeling the strain as much as Europe, which relies on Russia for more than 20 percent of its crude oil. Of course, that’s not to say Americans aren’t feeling the impact of the global gas shortage and what’s more, a rise in gas prices. 

So how will rocketing gas prices impact automotive manufacturers? Firstly, the cost of gas is likely to have an impact on which vehicle customers decide to buy. With gas prices reaching sky-high prices, manufacturers need to prepare for a change in buyer behavior. Consumers might start to choose fuel-efficient vehicles with a lower margin – alternatively, the rise in gas prices might accelerate the shift from gas to electric cars, with more consumers opting for electric or hybrid vehicles as their next purchase.

Secondly, if gas prices stay where they are, or continue to creep up, a huge worry for manufacturers is that the demand for all types of vehicles will simply start to decrease. After all, with the cost of living increasing, simultaneously with the increasing rise in gas, it could be likely that people decide to steer away from driving altogether. 

It’s also worth noting that gas supplies are also impacting individual manufacturing plants too – with many factories having to change their energy source as a result of gas supply risks.

A rise in the cost of vehicles

The Ukraine war is also threatening to drive up the cost of new vehicles too – with a combination of part shortage and the rise in gas prices having the potential to force manufacturers to respond by charging consumers more. 

In fact, with prices for gas soaring, along with the increasing cost of hard-to-get key vehicle components, it might be that manufacturers have no other option than to offset their outgoings by raising the cost of their vehicles. This will undoubtedly be a difficult choice for automakers to make, with prices for new vehicles already hitting record high levels over the past year, with some models coming in at more than $45,000.

And let’s not forget America’s big plans to boost the use of electric vehicles. If nickel supplies continue to suffer, this could result in few batteries produced for electric vehicles, which also could be a huge blow for President Biden’s plans to ensure half of all new automobiles produced by 2030 are electric. 

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A combination of part shortages, the continuous rise in gas prices, and cutting ties with Russia is clearly shaking up the automotive industry and it’s important that businesses across the sector introduce a solid sales, marketing, and business strategy in response to such unpredictability. Designed with automotive professionals in mind, the SnapCell app makes it easier than ever to create videos at the simple touch of a button. Explore what SnapCell has to offer and find out how the app can enhance your business.

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