Support for sanctions - significant impact of the war

"The companies in the German automotive industry condemn the Russian war of aggression in Ukraine. Our thoughts and our solidarity are with the affected people. It is our European neighbors who have a right to a self-determined development and future of their country!

This war represents a clear violation of international law, the invasion of Ukraine and the brutal actions of the Russian state against the civilian population must be stopped immediately. We expressly support the sanctions of the EU. Quick help and an end to hostilities must be the priority, economic issues are now taking a back seat.

We are in close contact with the federal government in order to provide an overview of the situation and to bring in practical questions from companies, e.g. on the implementation of the sanctions. We are in constant contact with our member companies in order to create an overall picture of the safety of employees in the war zone and the economic situation.

The following is an overview of the impacts that we can identify at this point in time.

1. Market presence

Last year, German manufacturers exported a little more than 40,000 vehicles to both countries – Russia and Ukraine. Specifically, 4,100 cars went to Ukraine and 35,600 cars to Russia. This corresponds to 1.7% of all cars exported from Germany. Russia ranks 18th in car exports from Germany.

In Russia itself, German manufacturers produced 170,000 cars in 2021, most of which were also sold there. The market share of German manufacturers in Russia is almost 20%.

The German automotive industry – manufacturers and suppliers combined – maintains around 43 production sites in Russia and six in the Ukraine. There are also other international plants supplying components.

2. Effects of the war

Russia's acts of war lead to the disruption of supply chains. Transport is restricted, production in supplier companies is canceled.

Wiring harnesses

In the short term, there will be a reduction in the supply of cable harnesses. The wiring harness is a complex component that is sometimes individually manufactured for each vehicle model. There is hardly any stock here. In addition to Tunisia, the Ukraine in particular supplies European manufacturers with this component. Wiring harnesses are complex components, so production cannot be rearranged at short notice or otherwise substituted.

Raw materials

In the long term, the automotive industry will face scarcity and price increases in raw materials. This applies in particular to the following raw materials from Russia and Ukraine:

Neon gas: Ukraine is one of the most important suppliers of neon. We expect an impact on European semiconductor production as there is already a supply shortage. In semiconductor production, high-performance lasers are used, which among other things require the inert gas neon.

Palladium: Among other things, we could lack palladium from Russia for catalysts. About a fifth of the palladium imported into Germany comes from Russia.

Nickel: An important raw material for the production of lithium-ion batteries is nickel. This raw material is therefore irreplaceable for the ramp-up of electromobility. According to forecasts, the demand for nickel will multiply. Among other things, Russia is an important producer of nickel ore.

In the case of other raw materials and supplies, the exact effects cannot yet be quantified, but we are examining them.

Supply chains

Stocks of intermediate products were already largely exhausted in some areas before the outbreak of the war due to the global pandemic. The disruptions to train and ship connections caused by the war as well as restrictions in air traffic are already having a significant impact on the supply and logistics chains. We expect the supply of parts to be tightened.

The delivery bottlenecks lead to a production stop in many plants of the German manufacturers. The affected companies only communicate the interruptions themselves.

In addition, the supply chains, e.g. to and from China, are under pressure because the overland routes through the crisis region are increasingly making transport impossible.

Sanctions

The European Union, the USA and other countries around the world have imposed sanctions on Russia and Belarus. New sanctions or tightening as a reaction to a further escalation of the situation in Ukraine are foreseeable. The effects of the financial sanctions also affect the automotive industry. The trade policy implications for the automotive industry cannot yet be precisely foreseen. The companies continuously check their products and supply chains in order to implement all current sanctions requirements.

Outlook

Due to the very dynamic situation, a reliable outlook is difficult. But one thing is certain: There will be further impairments in the production of vehicles in Germany. However, the VDA cannot yet quantify the extent of this.

Manufacturers and suppliers are working hard to compensate for the stoppages and disruptions in the supply chains and to ramp up alternatives. Continuing production at alternative locations is in the interest of customers, employees, companies and a strong business location in Germany and Europe. We will report regularly on the status."