SOUTHFIELD, Mich.–(BUSINESS WIRE)–The conflict in Ukraine once again exposes the fragility of the global economy and automotive supply chains. The devastating war and the severe sanctions against Russia are already having a serious effect on the prices of energy, raw materials and agricultural products. Added to this is the disruption of the automotive supply chain due to logistical challenges and production stoppages related to operations at the western Ukrainian border.
As a result, S&P Global Mobility (formerly IHS Markit Automotive Team) lowered its global light vehicle production forecast for 2022 and 2023 in the latest update to 2.6 million units for both years, to 81.6 million for 2022 and 88.5 million units for 2023. .
In 2022, 1.7 million units are cut in Europe alone, which overall includes just under a million units of lost demand in Russia and Ukraine. The rest is split between 1) worsening semiconductor supply issues and 2) the loss of Ukrainian-sourced wiring harnesses and other components, both of which will impact production on other other markets. Additionally, the complete loss of Russian palladium is a tail risk that is likely to become the industry’s biggest supply constraint.
The North American light vehicle production outlook has been reduced by 480,000 units and 549,000 units for 2022 and 2023, respectively. Amid the Russian-Ukrainian conflict, the March 2022 forecast update for North America reflects widespread cuts covering virtually all automakers amid the potential for the conflict and subsequent sanctions to impact the semiconductor production in the second half of 2022. , the lingering supply chain, labor and logistics issues remain significant concerns.
“With the release of the March guidance, we have cut 2.6 million units from our 2022 and 2023 outlook, but the downside risk is huge. Our worst-case scenario shows possible reductions of up to 4 million units for this year and next year,” said Mark Fulthorpe, executive director of global production forecasting at S&P Global Mobility.
In total, nearly 25 million units have been removed from S&P Global Mobility light vehicle production forecasts by 2030.
Pent-up demand reduced by about a third
Prior to the February 24 invasion of Ukraine, the global auto industry had spent more than a year under tight capacity conditions, with pent-up consumer demand estimated at up to 10 million units (or 12% ) above this year’s achievable production, according to S&P Global Mobility Forecast. The sudden loss of economic confidence (via high oil and commodity prices, weak equity markets and tightening interest rates) is dampening demand and could now reduce this shortfall by around a third – although that significant pent-up demand remains.
The supply chain remains the constraining factor
While macro concerns are important, the supply chain (not underlying consumer demand) will continue to set the upper limit for vehicle unit sales over the medium term. The main critical points weighing on production levels after the invasion fall into two broad categories: supply of semiconductor materials (particularly via Ukrainian neon and Russian palladium) and supply of electrical wiring harnesses .
Specialized hardware failures could limit semiconductor recovery
Semiconductor supply problems are worsening on two fronts: First, via neon gas supply disruptions. Ukrainian suppliers control nearly half of the high-purity neon supply to the semiconductor industry, where the element is used in lasers that etch patterns onto chips. Our leading research suggests the immediate risks are low based on semiconductor manufacturers holding sufficient gas (neon) inventory, but visibility is poor. The second challenge is the availability of palladium, which is used in plating and finishing semiconductors. In an additional negative twist, COVID-19 cases in China at a 2-year high are triggering quarantines and factory closures in northeastern manufacturing hubs, including Shenzhen and Changchun. All of the above increases the risk of losses of “stranded” chips, that is, semiconductors for which the “right” car cannot be built due to other constraints.
Ukrainian wiring harnesses difficult to replace
According to research by S&P Global Mobility, Ukrainian-made wiring harnesses were likely destined for around 500,000 to 1 million vehicles before the invasion. These harnesses include complex, hand-built cable assemblies. Although there are some dual supply agreements, switching will be difficult due to the already limited harness capacity in and around Europe. If the situation is not resolved quickly, it is estimated that production relocations could take 3 to 10 months due to machine waiting times and staff training times of several months. Nearly half (45%) of cable harnesses manufactured in Ukraine are normally exported to Germany and Poland, exposing German automakers to high exposure. On the positive side, once ramped up, lost production could be quickly recovered through the end of 2022 and beyond.
Palladium: potential next challenge
Although the likelihood is low as things stand, palladium has the potential to become the industry’s biggest supply constraint. Russia produces 40% of the palladium mined in the world according to United States Geological Survey. About two-thirds of palladium is used in vehicles, where it is the active element in catalytic converters for exhaust gas aftertreatment. If the Russian supply of palladium were suddenly interrupted (due to a Western boycott or Russian supply shutdown), production of all vehicles using such a supply (including hybrids) could potentially collapse. Stop. Although platinum is an alternative element, it is just as expensive and also largely of Russian origin. Any substitution is a regulatory minefield since design changes require regulatory re-registration, which can take months. However, at this time, S&P Global Mobility does not currently factor major palladium disruptions into its forecast.
About S&P Global Mobility
At S&P Global Mobility, we provide invaluable insights from unparalleled automotive data, enabling our customers to anticipate change and make decisions with conviction. Our expertise helps them optimize their business, reach the right consumers and shape the future of mobility. We open the door to automotive innovation, revealing the buying habits of today and helping customers plan for the emerging technologies of tomorrow.
S&P Global Mobility is a division of S&P Global (NYSE: SPGI). S&P Global is the world’s leading provider of credit ratings, benchmarks, analytics and workflow solutions for the global capital, commodity and automotive markets. With each of our offerings, we help many of the world’s leading organizations navigate the economic landscape so they can plan for tomorrow, today. For more information, visit www.spglobal.com/mobility.
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