German carmakers warn fallout from Ukraine invasion on production to get worse

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FRANKFURT, March 2 (Reuters) - German carmakers association VDA said that the fallout from Russia's invasion of Ukraine was disrupting transport routes as well as financial transactions and that it was bracing for shortages in a range of raw materials.

"It is difficult to provide a reliable outlook due to the highly dynamic situation. But one thing is clear: There will be further disruption of vehicle production in Germany," VDA said in a statement on Wednesday.

It said the impact from the conflict on shipping, rail and air freight was compounding problems in the supply chain at a time when inventory levels were already low.

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"In the long term, the car industry is facing shortages and higher prices of raw materials," VDA said.

In a separate statement, German luxury carmaker Mercedes-Benz (MBGn.DE) said on Wednesday it would suspend the export of passenger cars and vans to Russia as well as local manufacturing in the country. read more

VDA in particular highlighted neon gas, which is needed to produce already scarce automotive microchips and where Ukraine is a key exporting nation.

The supply of palladium, which goes into catalytic converters, is also thrown in doubt as Germany relies on Russia for about one fifth of imports.

VDA also cautioned that Russia is an important supplier of nickel ore, which is refined to go into lithium-ion car batteries.

German chemicals giant BASF (BASFn.DE) in 2018 secured access to nickel, which it refines in Finland for use in battery materials, through a partnership with Russia’s Norilsk Nickel (GMKN.MM).

VDA echoed member companies including Volkswagen (VOWG_p.DE), BMW and Porsche AG, who have said they are struggling to obtain crucial wire harnesses as suppliers in western Ukraine have been shuttered.

Affected suppliers of the component, needed for organizing miles of vehicle cables, include Leoni (LEOGn.DE), Fujikura (5803.T) and Nexans (NEXS.PA).

"The manufacturers and suppliers are working under pressure to compensate for the outages and disruptions in the supply chain and to ramp-up alternative solutions," VDA said.

It added it was too early to estimate the effect of trade sanctions.

VDA condemned the Russian attack as a breach of international law.

According to VDA, Germany exported 4,100 cars to Ukraine and 35,600 cars to Russia last year, accounting for 1.7% of German car exports between them.

In addition, German manufacturers produced 170,000 cars in Russia in 2021, primarily for the domestic market.

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Additional reporting Jan Schwartz Editing by Alexandra Hudson, Kirsten Donovan

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