Ukraine and COVID, plus harsh winter, could jeopardise E.U. production lines

Skyrocketing energy prices in Europe could put many OEMs in a position where a harsh winter could place certain automotive sectors at risk of being unable to keep their production lines running, says a new report by S&P Global Mobility. This report forecasts significant supply chain disruption from November through spring.

Circumstances including the COVID-19 pandemic and the Russian invasion of Ukraine have already stressed the automotive supply line—especially in regard to semiconductors. Now, according to the forecast, “some OEMs and suppliers with energy-intensive manufacturing processes may face extensive pressure in terms of energy costs in the coming months.” Losing one crucial piece in the global supply chain has been proven to be able to bring the automotive manufacturing industry to a crunching halt.

“If you look through the supply chain—particularly where there’s any metallic structure forming through pressing, welding or extrusion—there’s a tremendous amount of energy involved,” said Edwin Pope, Principal Analyst, Materials & Lightweighting at S&P Global Mobility. “Total energy usage in these companies could be up to one-and-a-half times what we’re seeing in vehicle assembly today. Anecdotally, we’re hearing that some of this manufacturing capacity is becoming so uneconomic that companies are simply shutting up shop.”

Quarterly production from Europe-based auto manufacturing plants was forecast to be in the 4–4.5-million-unit range per quarter—predicting moderate growth. However, with potential utility restrictions, that OEM output could be reduced to as low as 2.75–3 million units per quarter.

The consensus forecasts for a cold, wet European La Niña winter, combined with energy shortages, could have a similar effect. The recent leaks in the subsea Russian pipelines to Europe adds to risk and the likelihood that our model is directionally correct.

Before the energy crisis, gas and electric costs were a relatively inconsequential component of a vehicle’s bill of materials, typically less than €50 per vehicle. Now with cost increases ranging from €687 to €773 per vehicle, energy costs compound an already perilous position for the sector.

“The pressure on the automotive supply chain will be intense, especially the more one moves upstream from vehicle manufacturing,” Pope said. “Upstream supplier parts production constraints could impact OEM volumes. As a result, we see a risk of OEMs halting shipments of completed vehicles due to shortages of single components, which are not necessarily coupled to country-level energy policies.”

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