Automakers inactive production after invasion in Ukraine; other companies are also scrambling

Cars pour out of Kiev, Ukraine, as Russian troops approach the capital. (Reuters)

Several companies, including automakers Volkswagen and Renault, tire maker Nokian Tires and agricultural machinery giant John Deere, set out on Friday plans to close or relocate production operations following Russia’s invasion of Ukraine.

After invading earlier this week, Russian forces pushed further on Friday as rockets fired on Kiev and authorities said they were preparing for an attack aimed at overthrowing the government.

The United States on Thursday announced sweeping export restrictions against Russia, hammering away access to global exports of goods ranging from commercial electronics and computers to semiconductors and aircraft parts. This can lead to companies changing production plans or seeking alternative supply lines.

The invasion was a factor in consulting firms JD Power and LMC Automotive lowering their outlook for global new car sales by 2022 by 400,000 vehicles to 85.8 million units. The auto industry was already experiencing a shortage of vehicles due to the global semiconductor shortage.

“An already tight supply of vehicles and high prices around the world will come under additional pressure due to the severity and duration of the conflict in Ukraine,” said Jeff Schuster, president of global vehicle forecasting at LMC.

Rising oil and aluminum prices are likely to affect consumers’ willingness and ability to purchase vehicles, even as inventories improve, he added. “We have significantly lowered forecasts for Ukraine and Russia due to the escalating conflict between the two and the impact of sanctions on Russia.”

The conflict could push oil prices above $100 a barrel, increasing inflationary pressures on European and American consumers, Wells Fargo analyst Colin Langan said in a research paper. While consumers have been willing to pay above the sticker price to get new vehicles, continued higher gas prices could affect the long-term recovery, he said.

Germany’s Volkswagen said it would halt production at two German plants for a few days after a delay in making parts in Ukraine.

France’s Renault said it would suspend some operations at its car assembly plants in Russia next week due to logistical bottlenecks caused by parts shortages. It did not specify whether its supply chain was affected by the conflict, but a spokeswoman said the action was a result of reinforced borders between Russia and neighboring countries where parts are transported by truck.

The automaker is one of the western companies most exposed to Russia, where it makes 8% of its core revenues, according to Citibank.

“Interruptions are mainly caused by stricter border controls in transit countries and the forced need to change some established logistics routes,” the company’s Russian unit said, without naming countries.

Russian carmaker Avtovaz, controlled by Renault, also said it could suspend some assembly lines at a plant in central Russia for one day on Monday due to an ongoing global shortage of electronic components. Avtovaz also did not mention the invasion in her statement.

Finnish tire manufacturer Nokian said it is moving production of some key product lines from Russia to Finland and the United States in preparation for possible further sanctions after the invasion.

Agricultural machinery maker Deere & Co said on Friday that it has closed its office in Ukraine in recent weeks as a precaution. About 40 people work in Ukraine.

Other companies

Aptiv chief executive Kevin Clark said on Thursday that the US auto parts maker had been trading large volumes of parts from Ukraine for lower volume products in recent months “so we were better positioned to manage disruptions.”

Japanese car supplier Sumitomo Electric Industries, which employs some 6,000 people in Ukraine to make wire harnesses, said it has shut down operations at its plants there and talked with customers about potentially replacing supplies from other places.

Ford Motor Co has a 50% joint venture in Ford Sollers, which has three assembly plants in Russia, according to the Ford website. Ford said in a statement it was “deeply concerned” about the situation and would manage “all effects” on its business in real time.

The US automaker also said it would follow all trade sanctions laws, but declined to discuss whether the Sollers plants have been affected.

While French auto parts maker Valeo said the direct impact on the company is minimal, the invasion could reduce production volumes in the industry and increase energy or raw material prices.

Catalyst metals

For automakers, one of the supply chain concerns raised by the conflict in Ukraine has centered on the metals palladium, platinum and rhodium used in exhaust gas cleaning catalytic converters.

Russia produces about 38% of the world’s palladium, excluding recycled material, said Mark Wakefield, co-leader of consulting firm AlixPartners global automotive practice.

“It’s hard to imagine a global auto company that doesn’t have palladium from Russia,” he said.

Automakers shouldn’t be in an immediate shortage of palladium, Wakefield said, because there are stockpiles of the metal in London. There is “a six-month journey for palladium to make its way into a car,” he said.

Aluminum prices had risen before the conflict in Ukraine, Wakefield said. A shutdown of Russian aluminum supplies would increase cost pressures on automakers.

Japan’s largest steelmaker, Nippon Steel Corp, said Friday it will find alternatives to a raw material it buys from Russia and Ukraine in the event of a supply disruption.

Nippon Steel buys 14% of its iron ore pellets, small balls of iron ore powder used in steel production, from those countries. Officials said it has switched procurement to Brazil and Australia and the impact should be minimal.

Meanwhile, Russia said it partially restricted Meta Platforms Inc’s Facebook and accused it of “censoring” Russian media.

Delta Air Lines Inc, which does not operate flights to Ukraine or Russia, said Friday it had suspended its codeshare service with Russian airline Aeroflot.

Ring, the home security subsidiary of Inc, said it was working closely with its partners at Ukraine’s Squad “to support the safety and well-being of the team and their families.” According to LinkedIn data, Squad employs more than 700 people, some of whom worked for the Ring Ukraine research arm until about a year ago.

Amazon had no additional comments about its footprint in Ukraine or Russia, or the impact of US trade actions on its operations, if at all.

Toronto-based Kinross Gold Corp said the Kupol underground gold mine in the far northeastern corner of Russia is functioning normally. Nearly all of the company’s employees in the country are Russian, and Kupol has stocked on-site for an entire year, as it operates in a cold region, the company said. Kinross added that it was reviewing the latest sanctions against Russia to see how they could affect operations.