Could Russian sanctions improve European auto manufacturing?

The impact of Russian sanctions on the European automotive industry continues to grow. Manufacturers with a strong presence in the region are already struggling to cope with the low availability of parts, as import-export rates squeeze Russia’s material supply and inflate component costs. The conflict has damaged manufacturers’ confidence not only in the Russian automotive industry but also in the industry’s capacity to produce and export vehicles efficiently.

For instance, Volkswagen Group’s plants in Kaluga and Nizhny Novgorod are shutting down production until further notice, despite investing €1bn (US$1.097bn) into development since 2007. Renault is also reportedly looking to transfer ownership of AvtoVAZ, which produces Lada vehicles, to a local investor despite the recent reiteration of reinforced cooperation across the Renault Dacia sub-brand. At the same time, Stellantis has also ceased production of light goods vehicles, such as the Peugeot Expert at its Kaluga plant, citing supply problems.

Since Europe is one of its largest export markets, sanctions have prevented Russia from selling materials like steel, palladium—a metal used in catalytic converters—and aluminium to manufacturers. Igor Korovkin, Executive Director of the Association of Russian Automakers, comments that this could precipitate a rapid transition for European manufacturers, impacting material and component availability, as well as overall vehicle costs. He suggests that “the sanctions will have an impact primarily on the market for passenger vehicles, leading to a limited number of vehicles available for sale and disrupting the number of model choices.” He adds that “with some delay, the market gap can be filled by Asian manufacturers which are actively promoting the development of vehicle production in many countries across the Euro-Asian Economic Union,” but cautions that the transition is likely to be a long-term process.