Russian troops are on the move, pushing into two regions of separatist-controlled Ukraine and threatening to invade the rest of the country.
President Joe Biden is rolling out an array of what one observer has called “the mother of all sanctions” against the heart of the former Soviet Union. Those measures are meant to convince Russian President Vladimir Putin to step back by crippling his country’s already weak economy.
But there could be some serious collateral damage to the U.S. and its allies. In particular, the sanctions could hit an auto industry already struggling to cope with the impact of COVID, semiconductor shortages and other so-called “black swan” events, such as the recent blockade of traffic over two bridges linking the U.S. and Canada.
There is little question that Russia will feel the brunt of the new sanctions. They include restrictions on trade and banking, and target key individuals within the government and the network of oligarchs who prop up Putin.
Suffering will be shared
Russian-owned automakers are expected to face serious challenges, both due to restrictions on foreign parts purchases and Russia’s access to the international monetary transfer system, SWIFT. The Gaz Group, which produces commercial vehicles, buses and auto parts, has warned it may have to shut down due to sanctions.
And a number of foreign-owned automakers, such as Toyota, Volkswagen and Renault, will be hit, as well.
Stellantis — formed last year by the merger of Fiat Chrysler Automobiles and the PSA Group — has a large presence in Russia. Its plant in Kaluga, about 115 miles from Moscow, has been growing as an export base and now supplies the Peugeot Expert, Opel Vivaro and Citroën Jumpy vans for export to Europe and other markets. It also was expected to start producing a Fiat model, as well as a new manual transmission.
“If we cannot supply the plant, if that is the reality, we have either to transfer that production to other plants, or just limit ourselves,” Stellantis CEO Carlos Tavares said during an earnings conference call on Wednesday.
Volkswagen, as well as Renault-controlled Avtovaz, said they are studying the situation and have yet to determine what actions they will need to take.
U.S. automakers take softer blow
The two largest U.S automakers won’t feel a direct hit from sanctions. General Motors started pulling out of Russia in 2015 and sold off its remaining stake to Avtovaz in 2019 — the same year Ford announced plans to leave the market. But they might not escape impact entirely.
Russia is the world’s leading producer of palladium, a rare metal essential for catalytic converters. In recent weeks, as tensions about Ukraine have grown, the raw material has gone from a December low of just under $1,600 an ounce to a little over $2,400 as of midday Wednesday. Considering the typical automobile uses four grams or more of palladium, that could add $150 or more to what the factory pays. Manufacturers like GM and Ford would then have to decide whether to pass that on to consumers already paying record prices for new vehicles.
Russia is also the world’s third-largest source of nickel, a metal critical to lithium-ion batteries. While Indonesia and the Philippines are the two largest sources, supplies have become increasingly strained as production of battery-electric vehicles ramps up. Ironically, shortages of the metal could short-circuit the plans laid out by the Biden administration calling for 50% of the vehicles sold in the U.S. by 2030 to be battery powered.