Ukraine War Could Cut Down European Car Output by 15 Percent: Wells Fargo Analyst

A worker attaches a wiring harness to the chassis of a car at the BMW manufacturing facility in Greer, S.C., on Nov. 4, 2019. (Charles Mostoller/Reuters)

The Russia-Ukraine war could shave off up to 15 percent of European car production in the first half of this year, predicts a Wells Fargo analyst, leading to a contraction in availability of new vehicles.

Ukraine is a major supplier of wire harnesses, which are usually one of the first components to be installed in an automobile. A shortage of the material means that vehicle production essentially grinds to a halt.

There are 17 wire harness factories at present in Ukraine. Supply disruption of wire harnesses can affect 10 to 15 percent of European auto production, with an output reduction of up to 700,000 vehicles in the first and second quarters of 2022 being a possibility, according to a report by Wells Fargo auto analyst Colin Langan, reported Bloomberg. However, he also predicts auto output to be recouped within a year.

Carmakers like BMW and Volkswagen have already suspended production at some of their factories due to disruption in the supply of critical auto parts. Mercedes-Benz has scaled down output at one of its German plants.

Volkswagen Group is reportedly trying to get major suppliers of wire harnesses to relocate from Ukraine to other manufacturing plants while also searching for alternative suppliers in Eastern Europe, Mexico, North Africa, and potentially China.

“We have been working successfully with various suppliers from these regions for our models for years,” Audi said, according to Reuters. “It is possible, for example, that suppliers will split production across several locations.”

BMW is also engaging with alternative sources for car parts. Carmakers who have relied on Ukraine for parts will need to move fast to secure alternative sources as multiple companies will be “competing against each other for the same sources,” said Nick Klein, a vice president at global logistics firm OEC Group.

Countries like Tunisia, Serbia, and Romania have robust wire harness manufacturing industries. Wire harnessing leader Yazaki has a plant in Serbia that was set up in 2017. Buying new equipment and installing them to boost capacities could take several months.

Germany-based Leoni AG has two wire harness production facilities in Ukraine that have been impacted due to the war. The company has already said that it won’t be able to compensate for lost production this year. Leoni AG plans to double production at plants in other countries, something that could take up to three months.

European countries where car manufacturing plays a key economic role will be severely affected by the Russian invasion. This includes the Czech Republic, where the car industry makes up around 25 percent of the country’s industrial output as well as exports. In Hungary, 28 percent of industrial exports are accounted for by the auto sector.

The Czech car industry’s performance this year could be considered a success if its output reaches last year’s production of 1.1 million cars, Zdenek Petzl, executive director of Czech industry body AutoSAP, told Reuters. “The impact will be huge. It is amazing that companies survived the storm of the last two years. But now it is questionable what will happen.”