[S&P cuts global forecast for this year by 2.6 million…
Suspension of Volkswagen and BMW European plants,
Situation where it is difficult to transport even if parts are made]
/ Photo = Bloomberg The long-term Russian invasion of Ukraine is expected to reduce world car production again. This is because the supply of wire harnesses, an essential component for connecting automobile electronic and electronic components, was disrupted due to the Ukraine war in a situation where semiconductor supply and demand is still unstable in the aftermath of the COVID-19 pandemic.
According to CNBC and the Financial Times on the 17th, Standard & Poors Global Mobility predicted that global automobile production would decrease by millions by next year due to the aftermath of the Ukraine war. SP released its forecast for global automobile production this year and next year at 81.6 million units and 88.5 million units, respectively. This is a downward revision of 2.6 million units from the previous forecast. The forecast for production from this year to 2030 was also reduced by 25 million units.
SP said that the automobile industry was faced with a problem of supply only logistics and semiconductors as well as a shortage of wire harnesses due to the conflict between Russia and Ukraine.
SP explained that European automakers production will decrease by 1.7 million units this year, of which 1 million is due to a decrease in demand in Russia and Ukraine due to the Ukraine war, and 700,000 units due to a lack of automotive semiconductors and wire harnesses. It is estimated that North American auto production will fall by 480,000 this year.
European automakers are mainly supplying auto parts from Ukraine because of the cheaper labor costs in Ukraine than in Europe. According to FT, there are about 40 auto parts factories in Ukraine, and wire harnesses produced here account for about a fifth of Europes total supply. In particular, German automakers import 45% of the wire harnesses produced in Ukraine, so the damage from the Ukraine war is expected to be significant. Some of the European factories of Volkswagen and BMW have already been temporarily suspended due to a supply shortage of wire harnesses.
Workers attaching wire harnesses at a BMW plant. / Photo = Reuters Herbert Diess, Volkswagen CEO, said, “More factories are stopping production due to a lack of wire harnesses.” said “We are moving production to North America and China in response to the supply disruption due to the war in Ukraine, but it is not an easy situation,” said Diss CEO.
BMW lowered its forecast for this years auto divisions profit margin to 7-9% from the previous 8-10% due to concerns about production disruptions caused by the Ukraine crisis. BMW chief technology officer Frank Weber said that after the Russian invasion, German factories had lowered utilization or even halted production altogether.
Other automobile parts can be easily made in other factories if production is disrupted in existing factories, but wire harnesses are not easy to manufacture in new factories as they are customized parts for each vehicle. According to the industry, building the new equipment required to make a wire harness requires a minimum of £100,000 and a maximum of £2 million, and takes three to six months.
Meanwhile, according to industry insiders, some Ukrainian wire harness suppliers have resumed operation of their factories. However, as the problem of delivering finished parts across the Ukraine border to Europe remains, the shortage of parts is expected to continue for the time being even if the supplier resumes operation of the factory.
An official from a Ukrainian supplier said, “The problem is that the finished parts have to be loaded onto trucks and crossed the border, and the truck drivers are mostly male.” According to government guidelines, most men have been banned from leaving the country. Were asking retirees, but its a difficult situation,” he told the FT. The Ukrainian government previously issued a national decree on men aged 18 to 60 years old following the Russian invasion and banned them from leaving the country.
He added that the road crossing the border is clogged with tens of thousands of refugees heading to Poland and other countries, which is also causing transport disruptions. According to the United Nations High Commissioner for Refugees (UNHCR), as of the 15th of last month, more than 3 million refugees had fled Ukraine to escape a Russian attack, and the number of refugees expected to rise to 4 million.