Germany-based auto biggie
Volkswagen
’s
VWAGY
CEO Herbert Diess expects the company’s 2022 prospects to be hit by the Russia-Ukraine war in unforeseen ways. Russia’s attack on Ukraine has compounded supply chain issues and resulted in the shortage of parts and components sourced from Ukraine. Diess recently notified that the lack of wire harness, which plays a key role in connecting a variety of vehicle components, has now overtaken microchips shortfall and has become the company’s major supply concern.
While Volkswagen posted solid 2021 results and delivered on the NEW AUTO strategy, the geopolitical conflict between Russia and Ukraine is likely to prove a major speed bump in the firm’s progress. When the company unveiled 2021 results last week, it envisioned sales growth of 8-13% this year. Sales growth was 12% in 2021. Aggravating logistical challenges and the shortage of key parts — especially wire harnesses — might force Volkswagen to cut its 2022 guidance if the company is unable to procure wiring harnesses from alternative sources in a month or so. This is what the company’s CEO believes. Quoting him, “The war in the Ukraine has put our existing outlook into question.”
Diess also anticipates the commodity markets to remain volatile until 2026. VWAGY’s CFO Arno Antlitz expects escalating costs of raw materials to result in manufacturing inefficiencies and high production expenses, which would then be passed on to consumers. He has already warned that high commodity costs will drive the prices for both ICE and electric vehicles, as everything from batteries to catalytic converters would get more expensive.
Volkswagen has already halted production at two EV plants in Germany after the war broke out. Amid increasing instability and an uncertain environment in Europe, Diess had been contemplating to boost overall sales in China, wherein the company commands a huge presence. Volkswagen aims to double the sales of electrified vehicles in China in 2022. However, that also looks a bit uncertain now, as renewed coronavirus infections have triggered a lockdown in as many as 10 cities in the country. VWAGY suspended part of its operations in China amid rising COVID-19 infections. The company runs a joint venture operation with FAW and has suspended production at its vehicle and component plants.
Another auto biggie
Toyota
TM
also temporarily suspended operations at its joint venture plant with FAW group in Changchun in China. The Changchun facility produces the mainstay RAV4 sports utility vehicle. Toyota is yet to announce plans to reopen the plant.
Toyota, in January, halted activities at a joint venture plant in Tianjin, China, following the onslaught of the Omicron variant of coronavirus in the city. The hiatus resulted in a drop in its sales by about 20% in January from the year before. There has been an uptick in the sales figure by about 10% since then, but it is likely to be dented once more if operations at the Changchun plant remain suspended for a prolonged period.
EV behemoth
Tesla
TSLA
also halted operations at the Shanghai gigafactory for two days this week, as China tightened COVID-19 restrictions. The company also announced an overnight price increase in the range of 5-10% throughout its entire lineup of vehicles in China and the United States this week. Even last week, the auto magnate raised prices, charging $1,000 extra for all vehicles equipped with long-range battery packs. But the latest price increase is more glaring.
Inflationary pressure in raw materials and logistics, which have been exacerbated by the Russia-Ukraine war, has prompted the company to hike the prices of its vehicle models. Tesla’s cheapest electric car, the Model 3-Rear Wheel Drive, is now priced at $46,990, up from $44,990. Its price increased by a whopping $2,000 within just a week. The price of Model 3 Performance was increased by $3,000. As for the Model Y, Tesla increased the base price by $2,000. The price of the Performance version of the electric SUV was hiked by $3,000. Tesla’s flagship products, Model S and Model X, also saw a steep price rise. Model S and its performance version now cost an extra $5,000 each. Model X was spared from the previous price increases but this time, the electric SUV witnessed a price rise of $10,000.
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