Russia invaded Ukraine on two fronts, causing turmoil and grabbing global attention, but what does this mean for the auto market?
It took very little time for President Joe Biden to enact sanctions against Russia in response to this vicious attack. Those sanctions could easily cause collateral damage in areas of the automotive industry. Some of the problems involve Russia and its allies, while others the US and our allies. This invasion and the sanctions imposed cause an added stress level to an industry that’s already pushed to the brink.
How Much More Can Automakers Take?
Since the coronavirus pandemic, the automotive industry has taken hit after hit. First, the global shutdown caused production delays and canceled orders. Then, we saw the impact of the shortage of semiconductor chips, which still plague us today. After that, one organization had its shipment destroyed by a fire in the ocean, and now, this. The auto industry is already at crisis levels and can’t take a whole lot more. Even so, this industry was not at the front of mind for either Putin when he ordered the invasion of Ukraine or Biden when he imposed sanctions on Russia.
How do the Sanctions Impact Automakers?
The vastness of Russia makes it a land rich in many minerals necessary for the production of many products. In this case, Russia is one of the largest suppliers of palladium and nickel in the world. These two metals are vital to the auto market, making it nearly impossible to build cars if both metals aren’t available. Even though Russia isn’t the only place in the world to find these metals, the sanctions cause automakers to look elsewhere for them. Both of these metals could increase in price dramatically if these sanctions remain.
Palladium Shortages Could Seriously Cripple the Auto Industry
Every vehicle with a catalytic converter has palladium in this part of the car. All gasoline and diesel-powered vehicles use these parts to operate properly. Essentially, without palladium, automakers cannot produce internal combustion engines. Can you picture a world where vehicles couldn’t be produced simply because of a shortage of palladium? You can when you think about what the semiconductor shortage already did to this industry. Across the globe, Russia supplies 40 percent of the palladium used in catalytic converters.
Thankfully, there are at least two areas where supplies of palladium are plentiful enough to offset losing the Russian market. Both South Africa and Zimbabwe produce substantial amounts of this metal. Even so, we see prices climbing fast for this rare metal, which would likely translate to higher prices for the vehicles we drive every day.
Shortages of Nickel Would Slow the Biden EV Initiative
We see the entire auto market moving in the direction of electric vehicles. President Biden has a major initiative in place to have EV models account for half of the new autos sold by 2030. Nickel is necessary to build the batteries needed in electric vehicles. Losing the Russian market for this metal would impact the production of electric vehicles in many areas of the world. While not as large a contributor to the global nickel supply as palladium, these sanctions can deliver a massive blow to automakers.
Indonesia and the Philippines are the two largest suppliers of nickel outside of Russia. As expected, prices for this metal are already increasing, which would be another blow to the automotive market around the world.
These Sanctions Impact Russia as Well
You can’t think that Russian automakers want to face sanctions and lose production potential, either. Currently, automakers in Russia depend on foreign sources for 25 percent of the parts needed to build their vehicles. Some automakers in the country already stated they would have to halt production if sanctions remain in effect. Not only will Russian automakers feel the blow, but some of the most common names in the market still have operations in this country.
Stellantis has a significant presence in Russia, as does Toyota and Volkswagen. Stellantis reported they would move production to other plants if they cannot supply their plant in Russia because of these sanctions by the United States.
GM and Ford Are Not in Russia
Every time we look, it seems that GM and Ford are present in foreign auto markets, which makes us wonder if they are in Russia as well. They are not. Ford shut operations down in 2019, and GM began pulling out in 2015 and sold any remaining assets in 2019 to a Russian company.
Will Russian Allies Adopt Their Own Sanctions?
We might not think that Russia has many allies with the level of concern and support shown for Ukraine, but there’s one major outlier that can be a huge problem for every auto market in the world. China is an ally of Russia. The Chinese automotive industry is enormous, the largest in the world, and China supplies many of the electronics needed for vehicles.
Not only does China supply electronics needed, such as semiconductor chips, but they also supply many of the raw materials needed to build electric vehicles. China is the largest global supplier of lithium, which is the main ingredient in the batteries made for electric vehicles to operate.
A Fragile Situation We have to Wait Out
The situation in Ukraine escalates daily, troops are moving on both sides of the border, and peace isn’t happening anytime soon. Will the sanctions continue to impact the auto industry? Will China or Russia impose their own set of sanctions, virtually cutting themselves off from the rest of the world? The tragedy in Ukraine is much more critical than one production industry, but the actions of world leaders have an impact on the people they serve.
Many automakers are waiting out this situation, hoping to resolve this dire situation peacefully and soon. That would be the ideal result for all involved.
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