On February 26th, several European and American automotive companies, including Germany’s Volkswagen, France’s Renault, and tire manufacturer Nokian Tyres, successively announced plans to suspend production or relocate product lines. Geopolitical uncertainties have sparked anxiety among automakers, largely due to disruptions in automotive parts supply and new vehicle production plans in the affected regions.

Furthermore, the current economic sanctions imposed by Europe and the United States on Russia may have more far-reaching impacts on the global automotive industry.

It is reported that Russia is one of the world’s largest suppliers of several critical metals for automobile manufacturing, including palladium and nickel. It is also home to numerous automotive production bases. Given Russia’s significant role in the automotive supply chain, industry analysts suggest that if new sanctions are imposed on Russia, local automakers may be forced to switch to suppliers in other regions, potentially facing higher costs.

“The automotive market is a 典型 example of a globalized industrial chain. Especially amid trends like intelligentization, connectivity, and electrification, the interdependence between upstream and downstream sectors of the automotive industry will deepen further,” noted Qian Wenying, a senior automotive industry analyst and researcher at the Case Center of China Europe International Business School, in an interview with 21st Century Business Herald. She added that whether the global automotive industry will face turmoil depends on the further development of the geopolitical situation.

Recently, several European automakers with factories in Russia have been affected to varying degrees.

Volkswagen stated that two of its German factories will suspend production for several days due to delayed delivery of parts produced in Ukraine. Similarly, French automaker Renault announced that it will 暂停部分 operations at its Russian assembly plants next week due to parts shortages.

In addition, some automakers are beginning to consider potential economic sanctions on Russia. A Mercedes-Benz spokesperson stated via email that the company will take possible sanctions into account in its business activities with Russia.

Automakers are all strategizing ways to weather this “crisis,” and they share a common trait: close ties to the Russian market.

As early as 2009, Volkswagen established an automobile manufacturing plant in Kaluga, Russia, which currently employs approximately 4,000 workers. Mercedes-Benz also invested €250 million in a Russian factory in 2017. The BMW Group has similarly invested in the Russian market and extended its expiring partnership with a Russian automaker to 2028 a few months ago.

In comparison, French automaker Renault is more significantly affected by the Russian market. According to Citibank data, 8% of the automaker’s core profits come from Russia. Additionally, Renault holds a controlling stake in Avtovaz, Russia’s largest automaker.

Explaining why automakers have invested heavily in Russian factories, Zhang Xiang, a researcher at the Automotive Industry Innovation Research Center of North China University of Technology, told 21st Century Business Herald: “Russia is a large market; its vehicle production and manufacturing cover Eastern Europe, making it equivalent to an entire automotive base.” He believes that automakers are competing to enter the Russian market both to seize this important market and to increase their revenue in Eastern Europe.

Data from the Association of European Businesses (AEB) shows that in the Russian automotive market, the Renault-Nissan-Mitsubishi Alliance held a 38% market share in 2021, followed by Hyundai Motor Group at approximately 19%, Volkswagen Group at 9.5%, and Toyota at 8.6%.

Despite their efforts to expand market share in Russia, the ongoing Russia-Ukraine crisis has prompted some automakers to consider withdrawing. Carlos Tavares, CEO of Stellantis, the world’s fourth-largest automaker, stated: “If Western sanctions disrupt our production in Russia, the company will be prepared to relocate that production to other factories or impose restrictions ourselves.” Additionally, Finnish tire manufacturer Nokian Tyres announced that it is transferring some key product lines from Russia to Finland and the United States.

In response, Qian Wenying told 21st Century Business Herald that automakers are most concerned about further deterioration of the geopolitical situation, which could result in greater losses to their local production.

Automakers’ concerns are not unfounded. Currently, economic sanctions imposed by Europe and the United States on Russia are expected to hinder automobile manufacturing, with parts imports being the first to be affected.

Industry analysts note that since at least a quarter of the components in Russian-made vehicles are imported, including from the United States, assembly plants in Russia may struggle to operate during the sanctions.

Supporting this view, Zhang Xiang told reporters that after Europe and the United States excluded some Russian banks from the SWIFT payment system, automakers in Russia may face difficulties importing automotive parts, making it highly likely that vehicle production in Russia will halt. “Automotive production relies on supply chain integration; a shortage of even one component can disrupt assembly and delivery,” he explained.

In fact, the escalation of the Ukraine crisis has gradually spread to the entire automotive supply chain.

Russia is a major exporter of metals such as palladium, nickel, and aluminum. It produces approximately 40% of the world’s palladium, 9% of global nickel, and accounts for about 10% of U.S. aluminum imports.

These metals have various applications in the automotive industry: palladium is widely used in automotive catalytic converters, with the automotive sector accounting for 85% of global palladium demand; nickel is a key upstream raw material for electric vehicle battery manufacturing; and aluminum is one of the most widely used materials in automobiles after steel.

Against the backdrop of geopolitical conflicts, precious metal prices have fluctuated. According to CITIC Securities data, since the start of 2022, aluminum, nickel, and palladium prices have risen by 20%, 17%, and 30% respectively, with potential for further increases.

“Metals like palladium, nickel, and aluminum are crucial raw materials for the automotive industry. Price instability in the upstream sector will impact manufacturing,” Qian Wenying told reporters. In the short term, price fluctuations will affect automakers’ delivery speeds, particularly in the electric vehicle market, which is in a critical phase of transitioning from early adopters to mainstream users. However, she believes that the price surge is unlikely to become a long-term trend.

Faced with the current situation, some automakers have already adjusted production plans or sought alternative supply chains. Zhang Xiang noted that finding alternative supply chains will take time, and until then, if supply-demand issues are not resolved, automobile production costs will rise. “The impact of geopolitical factors on the global automotive supply chain may take three to five years to recover,” he predicted.