The disproportionate impact of war in Ukraine on German automakers

The war in Ukraine has lead to plant closures across Germany and a likely loss of around 150k units in March alone.

By the beginning of March this year, following Russia’s invasion of Ukraine, almost all automotive production in the two warring countries had come to a complete standstill.

In normal times, Russia is the third-largest European Light Vehicle producer (behind Germany and Spain), manufacturing just under 1.5 million units in 2021. So, closures on the current scale (amounting to over 90% of the country’s Light Vehicle capacity) are having a profound impact on regional volumes. Disruption in Ukraine, with its small Light Vehicle assembly operation — just 7,000 units were built last year — has only a limited regional volume impact.

By way of overspill, shortages of components sourced from Russia and Ukraine are affecting build in other markets across the region and will continue to do so. However, as highlighted in the chart below which shows announced plant closures in Europe (excluding Russia and Ukraine) due to the war, it is striking that most shutdowns are in plants operated by German OEMs. In March alone, OEM announcements and our estimates lead us to believe that German automakers will lose just under 150,000 units of output (against our volume benchmark). So, what is driving these closures?

Europe (excluding Russia and Ukraine) — Announced Automotive Plant Closures for March 2022:

*Source: LMC Automotive Disruption Tracker

The key to understanding the impact on German OEMs is that while they are the most prolific car producers in the region and despite products being labelled with ‘Made in Germany’ every vehicle contains hundreds of components sourced from markets to the east. A quick glance at the table below makes it apparent that the underlying reason for the overweight impact on German automakers is their reliance on a cluster of wiring harness suppliers in Ukraine.

Can this be remedied? Yes, the prognosis is good, with supply re-sourcing activity now well underway. Indeed, VW Group, the worst affected by this disruption, has already announced that it is increasingly sourcing affected components from plants in Romania and Hungary as well as some from outside of Europe to offset the shortfall in Ukraine. Amazingly, several Ukrainian suppliers are continuing to produce in small volumes, although the sustainability of this supply remains a risk. Nevertheless, the disruption to German output due to wiring harness shortages seems increasingly likely to recede in April.