Russia-Ukraine’s impact on the looming automotive recession

The supply of minerals, crucial to the advancement of vehicle electrification efforts, has been disrupted as a direct effect of the Russian invasion of Ukraine. In early March 2022, there was a 30% increase in the price of nickel—an essential material for cathodes in lithium batteries. Since Russia is the third-largest supplier of nickel in the world, this is likely to make electric vehicle (EV) production a more expensive task for automakers. However, this is just one part of the story.

“The biggest impact to date has been uncertainty. When we speak with manufacturing executives who rely on a multitude of countries for labour, raw materials, and logistics, you can sense that they are hesitating to make any big moves,” says Dennis Theodorou, Managing Director of JMJ Phillip Executive Search—a search firm specialising in manufacturing, supply chain, and technology. “Now, companies are playing the ‘what if’ game to map out all the different scenarios. This could delay product launches and slow production down even when some companies are struggling to meet demand because of material shortages.”

Already strained global semiconductor supply chains could soon feel the effects of the war. According to KPMG, Ukraine supplies more than 90% of US semiconductor-grade neon, while Russia supplies 35% of US palladium and 20% of global production of semiconductor-grade nickel. While finding alternative sources of supply is not impossible—semiconductor manufacturers have already announced the creation of manufacturing sites in the US and Mexico—it will take time, exacerbating near-term semiconductor shortages.

Jaguar Land Rover, for example, cut UK output in March 2022 as it prioritised higher-margin models due to chip shortages. Similarly, Honda reduced output by up to 40% in Japan due to supply problems in September 2022.