Nine months ago, Elon Musk had told in a Kremlin-sponsored event that he would build a factory in Russia. President Putin had inaugurated a Mercedes Benz factory near Moscow in 2019. A year later, Renault took control of the majority stake in Lada maker, Avtovaz after investing more than $2 billion into the government-owned car company.
International car manufacturers halting their operations
International car manufacturers are winding down their operations in Russia following their invasion of Ukraine, and it looks difficult for them to reinvest soon.
The war has resulted in widespread sanctions against Russia, causing a record plunge in its currency ruble and untenable business.
As per Bloomberg News, Volkswagen announced halting production until further notice. The Mercedes plant also paused, and Renault, the European automaker with most exposure in Russia, has slowed down on facility due to supply constraints at the largest car-making complex run by Avtovaz.
Renault has plenty at stake and no alternative options. Russia accounted for $5.5 billion of its revenue last year, and around €315 million operating profit may be affected as per estimates by Bloomberg intelligence.
Renault shares plummeted to their lowest since November 2020 last week.
Daimler Trucks has stopped its business operations in Russia and said it would review its tie-up with a local partner. Coming out of such a venture when no one wants to buy Russian assets will cost heavily, and BP, for example, will lose around $25 billion if they dump their stakes in Russian oil giant Rosneft.
The war will have a rippling effect in Europe even as carmakers were making a comeback after struggling with a shortage of chip supplies and pandemics.
Russia supplies raw materials such as palladium for catalytic converters and nickel for EV batteries, among others. Ukraine is a critical supplier of neon gas used for cable harnesses and chipmaking.
German parts manufacturer Leoni has two cable harness plants in Ukraine and employs about 7000 workers. It is trying to add capacity to other sites to overcome the problem.
Analysts Jenny Voigtlaender and Hanswolf Hohn at Deutsche Bank said that parts production in Ukraine might disrupt the supply chain and hit Europe. Volkswagen may be hit the most.
VW, which recently lost around 4000 cars when its cargo ship burnt and the most went down the Atlantic Sea, said on Tuesday that it was idling its production in its largest factory in Wolfsburg, Germany, before a broader shutdown next week. Other German sites affected include Hanover and Emden, the commercial vehicle facility for VW, and factories in Germany and Hungary that make porches and Audis, respectively.
VW had warned last week that it would stop making EVs at its plants in Dresden and Zwickau in Germany due to cable parts shortage.
Car sales also spiked initially as consumers looked for value deals in auto as the ruble depreciated and inflation soared.
