Ukraine Crisis in Miniature: Auto Industry in Deep Quagmire
Historians are marking February 24, 2022, as another historical juncture after the end of World War II and the Cold War. The world economic situation is changing rapidly, and this change will also profoundly affect the auto market in 2022 and even the next five years.
“The situation in Russia and Ukraine poses a ‘significant risk’ to a recovery in global light-vehicle sales this year.”
Auto industry consultancy J.D. Power said that in a Feb. 25 joint forecast. Combined with higher oil and aluminum prices that could also weigh on consumers buying new cars, the forecast for global light-vehicle sales this year decreased by 0.4 million to 85.8 million. Based on the severity and duration of the situation in Russia and Ukraine, global auto supply and prices will face greater pressure.
In my opinion, this geopolitical crisis will have three major impacts on the auto industry.
First, the chip industry chain is further de-globalized, and the shortage of automotive chips will continue in 2022.Second, as oil prices rise, countries increase investment in renewable energy to seek energy independence, which is good for electric vehicles, and the time point for the translocation of electric vehicles and fuel vehicles will be further advanced.Third, as raw materials such as power batteries rise, the price increase of electric vehicles will become a high probability event; the global freight rate will rise, and the purchase of imported vehicles will also face a rising price trend.
I will detail the changes brought about by this conflict from both the raw material market and how to respond.
Raw material market hit
The Russian-Ukrainian conflict first affects the prices of various raw materials.
Russia is one of the largest suppliers of several major metals used in global auto manufacturing, including palladium and nickel. It is also home to a sizable manufacturing base that includes many factories owned by foreign manufacturers such as Stellantis, Volkswagen and Toyota. At least a quarter of the components in Russian-made cars come from abroad, including the U.S. — assembly plants that may struggle to continue operating while sanctions are in place.
On February 24, the situation in Russia and Ukraine caused oil prices to soar above $100 a barrel, the first time oil prices have exceeded $100 since 2014. The price of Brent crude oil even touched $105.
Aluminium prices on the London Metal Exchange (LME) jumped 4.8% to $3,449 a tonne on February 24, surpassing the previous record set in 2008, while nickel prices surged to their highest since 2011. Rising aluminum prices will undoubtedly bring new inflationary pressures to the auto industry, and while nickel is a very important battery cathode material, palladium plays an important role in the semiconductor industry.
In addition, 70% of the neon gas used for lasers in the semiconductor industry comes from Ukraine, and 90% of the semiconductor-grade neon gas used in the United States comes from Ukraine.
As a result, shortages of raw materials and rising costs caused by the crisis in Ukraine are affecting the supply chain of the automotive industry. Faced with such a crisis, auto companies need to respond proactively.
How the auto industry is responding to the crisis
1. Accelerate product transformation, the general trend
This crisis has also made people aware of the fragility of the supply chain of natural resources such as oil and natural gas. Therefore, auto companies need to strengthen the exploration of renewable energy and invest more in new energy vehicles. And in the long run, the crisis will increase consumer acceptance of new energy vehicles, thereby accelerating the transformation of the auto industry.
Whether it is from the perspective of energy structure or carbon peaking and carbon neutrality, the development potential of new energy vehicles is far from being tapped. And the automobile industry, as a strategic industry of the national economy, the development of new energy vehicles will change the development of society and energy through electric intelligence.
Therefore, under the Ukrainian crisis, automobile companies should accelerate the research and development and upgrade of new energy vehicles, and get rid of the dependence on energy and materials as soon as possible.
2. Humanitarian care to enhance the company’s image
At this time of crisis, humanistic care is particularly important.
In the case of Skoda, the Czech company, which employs around 600 people in the Czech Republic and manufactures cars in Solomonovo, will donate around 400,000 euros to the charity People in Need.
Skoda will also support any Ukrainian worker in establishing a safe life in the Czech Republic, assisting them with visa applications, accommodation, language courses, employment and education. During the Ukraine crisis, Skoda insists that “people” is one of the company’s brand values, and putting this value into action is more important than ever. And Skoda is also calling on consumers to join the donation drive, calling on people to contribute and support those in need. These actions help to enhance Skoda’s social image.
Social responsibility is the best image advertisement of an enterprise. Humanistic care activities of enterprises can establish a good social image and help increase consumers’ trust in enterprises, thereby increasing consumers’ loyalty to enterprises. After the corporate reputation and word of mouth are improved, the brand competitiveness and corporate competitiveness of the company will also be greatly improved.
Therefore, in order to better cope with the impact of the Ukraine crisis, when solving product problems, the automotive industry should also start from the perspective of “empathy”, so that consumers can increase their confidence in the brand.
