Automotive and war: production and sales crisis

Economy, supply chains, world trade, all are suffering dramatically from the ongoing conflict between Russia and Ukraine, with consequences that will perhaps be felt for years. And it is precisely the effects of the war that is weighing heavily on the automotive industry. According to a study by Standard & Poor's Global Mobility agency, a drop of about 5 million units is expected on global production from 2022-2023.

The causes lie, first and foremost, in logistic problems as well as the supply chain that generated the conflict, as well as shortages of some critical components. Wiring components, for example, are produced in Ukraine: the country was home to 17 factories dedicated to these products and is second only to Romania and Morocco, as well as being strategically involved along with Poland in clearing and sorting raw materials and products from China. On the other hand, on the opposite side, factories located in Russia are struggling with the consequences of sanctions and transport difficulties. Obviously, the effect is devastating for the car market, which has been severely penalized. These difficulties have been compounded by the fact that manufacturers are prioritizing the production of high-end cars - particularly electric or hybrid - that offer higher profit margins, to the detriment of smaller cars and consequently of the economically weaker segments.

And it is no coincidence that we are facing a growth in the second-hand market, which brings with it an increased demand for spare parts. Demand also concerns discontinued products, with manufacturers having to quickly revise older designs with all that follows in terms of testing and after-market approvals. In addition, all is not well for EVs and hybrids: in fact, several obstacles have to be dealt with in this field as well. Both Ukraine and Russia, in fact, supply vast quantities of valuable materials for electric batteries. Nickel, the price of which has literally gone crazy, is used in both electric car batteries and steel production and the same goes for cobalt and lithium. When can we expect a recovery from a crisis that is also hitting tire manufacturers? "The car market could start recovering in 2024: the numbers are unlikely to be comforting before that date." This was stated by Michelin's Ceo Florent Menegaux in a recent interview when he made predictions about the sales trend of the automotive sector, which of course involves both wheel and tire producers.

According to the CEO of the French giant, sales volumes are still suffering from the lingering microchip shortage and will be for a long time to come, due in part to the Russian invasion of Ukraine, but also because of new outbreaks of Covid-19 in China and rising energy and raw material costs - all factors that will put a strain on supply chains. "Having said that the automotive market could return to pre-pandemic levels during 2024, European sales might be slightly slower due to consumer uncertainty. Scores of motorists will be wondering what kind of a vehicle to buy, considering both stricter pollution standards and the trend in the value of different cars on the second-hand market. Meanwhile, like much of the supply chain, tire manufacturers have also been indirectly affected by the microchip crisis: deliveries of equipment used for tire production has been drastically delayed. In addition to the abovementioned microchip shortage, tire manufacturers also face rising transportation costs - partly fuelled by a dwindling number of truck drivers after thousands of Ukrainian drivers returned home to fight the Russian invasion - and soaring energy prices, especially in Europe. Some manufacturers have been forced to adjust tire prices upward over the past six months to, at least partially, protect margins from the sharp rise in production costs.