Russian invasion of Ukraine will reduce car production by millions of units over the next two years, S&P says

Two workers working on Mercedez Benz manufacturing unit. Image Credit.

According to S&P Global Mobility, the war in Ukraine is anticipated to reduce global light-duty vehicle manufacturing by millions of units until next year.

On Wednesday, the automotive research group, formerly known as IHS Markit, cut its worldwide light vehicle production prediction for 2022 and 2023 by 2.6 million units for both years, to 81.6 million for 2022 and 88.5 million for 2023.

The Ukraine war has led to logistical and supply chain issues, as well as essential vehicle component parts shortages. Many automakers, for example, get wire harnesses from Ukraine, which are used in cars for electrical power and communication between parts. The issues add to a supply chain that is already stretched due to the coronavirus pandemic and a manufacturing shortage of semiconductor chips.

According to S&P, European auto manufacturing will be the most affected. The company slashed its European projection by 1.7 million units, with just under 1 million units lost due to lower demand in Russia and Ukraine. The remaining reductions are due to war-related parts shortages, such as chips and wiring harnesses.

In comparison, S&P intends to cut light-duty vehicle manufacturing in North America by 480,000 units in 2022 and 549,000 units in 2023.

According to S&P, over 45 percent of Ukraine-made wiring harnesses are usually exported to Germany and Poland, putting German automakers at risk. Since Russia's invasion of Ukraine three weeks ago, automakers such as Volkswagen and BMW have been among the hardest hit.

Volkswagen CEO Herbert Diess stated earlier this week that the conflict has put the automaker's 2022 outlook in jeopardy due to parts shortages. In reaction to supply-chain delays caused by the war, he said the corporation was transferring some of its production out of Europe and into North America and China.

Due to the impact of the ongoing Ukraine situation, BMW lowered its profit margin prediction for its automotive segment for 2022 from 8% -10% to 7% -9% on Wednesday.

BMW's plants will resume full production next week, following the luxury automaker's decision to halt or reduce production output at some German operations following the invasion, according to Frank Weber, the company's chief technology officer.

To maintain jobs in the country, Weber said the company worked with suppliers to duplicate, rather than relocate, wire harnessing operations.

"If you look at Ukraine, this wire harnessing industry employs over 20,000 people," Weber said at a virtual discussion with reporters on Wednesday. "We didn't want to just take the task away."

S&P said on Wednesday that it had cut approximately 25 million units from its outlook for global light-duty vehicle production between now and 2030.

Source: CNBC