russia’s war against Ukraine massively disrupted global auto production

russia’s war against Ukraine massively disrupted global auto production

russia’s war against Ukraine is costly and dangerous for the world #automotive sector, as far as Ukraine is a key provider of some important inputs into industrial value chains.

▪ Two Ukrainian companies – Ingas LLC and Cryoin Engineering LLC – produced nearly 50% of the world’s semiconductor-grade #neon, critical for the production of #microchips. Prior to the russian invasion, Ingas LLC was based in Mariupol, producing 15,000 to 20,000 m3 of neon per month for the United States, Taiwan, South Korea, China, and Germany, with about 75% of customers coming from the microchip industry. Odesa-based Cryoin Engineering LLC, with a monthly production of 10-15,000 m3 of neon, ceased operations on February 24, when it became too dangerous to work.  
▪ It is known fact that Ukraine supplies more than 90% of neon required by US chip makers. To date, they still have stocks which may end at the end of the year. Thus, disruptions in neon supplies could create new problems for car producers at a time when the industry just recovering from a shortage of semiconductors that was induced by Covid pandemic.

▪ According to Reuters, automobile companies have invested more than $600 million in 38 plants in Ukraine. These companies mostly produce relatively simple inputs like wire harnesses, which hold together electric cabling in cars. Well Cargo estimates that some 10-15% of European wire harnesses are sourced from Ukraine and they can’t be easily re-sourced to another parts maker.

▪ In order to avoid part deficit, such German auto giants as BMW Group, Mercedes-Benz Group and Volkswagen Group are trying to coordinate with operating Ukrainian suppliers and at the same time to expand their supply networks outside Ukraine. However, the disruptions in the global supply chain due to russia’s invasion of Ukraine have already led to a halt in production at some Volkswagen Group and BMW Group plants, and it is expected that these companies are last but not least.

▪ As a result of the war, S&P Global experts downsized the forecast for global car production from 84 to 82 million units in 2022 and from 91 to 88 million in 2023.

📌 Disruptions in automotive sector cause significant losses not only for manufacturing companies, but also for the economic well-being of the countries as a whole. Deutsche Bank strategist Christian Wietoska estimated that due to the closure of car plants in 2020 as a response to COVID pandemic, every week of downtime reduced the GDP of the Czech Republic and Hungary by almost 0.1 percentage points. Therefore, these small economies became more exposed than the stronger economies.

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