The conflict in Ukraine once again exposes the fragility of the world’s economy and the automotive supply chains. The damaging war and severe sanctions against Russia are already having a serious effect on energy prices, raw materials and agricultural goods. On top comes the disruption of the automotive supply chain due to logistical challenges and production stops related to operations on the West Ukrainian border.
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As a result, S&P Global Mobility (formerly the automotive team at IHS Markit) has downgraded its 2022 and 2023 global light vehicle production forecast in the latest update by 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 from Europe alone, which broadly includes just under 1 million units from lost demand in Russia and Ukraine. The remainder is split between 1) worsening semiconductor supply issues, and 2) loss of Ukraine-sourced wiring harnesses and other components, both of which will impact production in other markets. In addition, the complete loss of Russian palladium is a tail risk with the potential to become the industry’s biggest supply constraint.
The outlook for North America light vehicle production was reduced by 480,000 units and by 549,000 units for 2022 and 2023, respectively. Amid the backdrop of the Russia/Ukraine conflict, the March 2022 forecast update for North America reflects broad-based reductions spanning virtually every automaker amid the potential for the conflict and subsequent sanctions to impact the production of semiconductors in the second half of 2022. Further, lingering supply chain, labor and logistics challenges remain material concerns.
“With the March forecast release, we removed 2.6 million units from our 2022 and 2023 outlook, but the downside risk is enormous. Our worst case contingency shows possible reductions up to 4 million units for this and next year,” said Mark Fulthorpe, Executive Director for global production forecasting. S&PGlobal Mobility.
Pent-up demand reduced by roughly one third
Pre-Ukraine invasion on February 24, the global auto industry had spent more than a year under capacity-constrained conditions, with estimated pent up consumer demand of up to 10 million units (or 12%) above this year’s achievable production, based on S&P Global Mobility forecasts. The sudden loss of economic confidence (via high oil and raw material prices, weak equity markets, and tightening interest rates) is dampening demand, and could now reduce that shortfall by roughly one third – though significant pent-up demand remains.