Ukraine – EU Truck Sectors at Immediate Risk. Others to Unfold

Putin’s war against Ukraine continues to present uncertain, but no doubt negative impacts on the global auto industry. The Medium and Heavy Truck segments throughout the European region are now clearly under extreme risk. Other collateral risks – such as the shutdown of Toyota in Japan this morning because of a cyber-attack – will only become apparent after they happen in AutoInformed’s view.

“The Ukrainian market and auto sector will, no doubt, bear the brunt but effects are also likely to be felt elsewhere in the region,” said  Zita Zigan, Director, Global CV at the respected LMC* consultancy this morning. “Some of the variables that are likely to be immediately affected are critically relevant to truck demand across the region,” Zigan said. Following are highlights of myriad problems – real and potential.

Downside risks

Oil and gas prices: Gas futures surged on 24 February when Russian troops moved into Ukraine, signaling increased risk to already tight supplies, especially in countries whose energy supply is highly dependent on Russia. Rising oil and gas prices will put further upward pressure on inflation, hitting the consumer side of the economy via the impact on real incomes. From a Heavy Truck perspective, rising TCO (total cost of ownership) puts downward pressure on demand.

Trade disruption: Russia’s position as a major supplier of energy, minerals and other raw materials, means further risk of disruption to already strained supply chains, leading to negative consequences for manufacturing and industrial output, a key driver of freight demand. Air, road, and rail freight flows are already affected and are exacerbating shortages in automotive manufacturing in some locations.

Investment: The combination of impending sanctions, inflation and oil prices has sent the ruble – and European investor confidence -plummeting, just as Covid worries were starting to recede. A collapse in investment – as happened across the CIS region in 2015 – would deal a sharp blow to capital goods such as trucks.

Drivers: The European driver shortage is intensifying, with transport firms based in Poland and Lithuania employing tens of thousands of Ukrainian drivers, many of whom are expected to prioritize supporting their families or take up arms in defense of their country.

Upside risks

Public investment: Western governments have announced massive defense budgets. In an unprecedented move, the new German Chancellor, Olav Scholz, has pledged additional military investment amounting to EUR 100bn in 2022 in Germany alone. This will act as a significant stimulus to the military industrial sector. Heavy Truck demand is likely to benefit from the boost to military hardware manufacturing.

Construction: Investment in construction also tends to rise during times of war as supply lines are extended and fortified to aid the logistical effort, and damaged or destroyed infrastructure needs to be repaired or replaced. As after natural disasters, construction vehicle demand tends to rise temporarily as a result.

Status

Zigan says, “Much will now depend on whether the invasion of Ukraine will be followed by a swift occupation and installation of a Moscow-oriented regime, or whether the conflict will become a prolonged war of attrition extending for months or even years. The situation is still very much in flux and predictions are difficult.”

 Affected OEMs

AvtoKrAZ is the only complete cycle manufacturer of HD trucks in Ukraine. Its line-up includes 33 base models of two-, three- and four-axle conventional and cabover trucks. The KrAZ plant, based in Kremenchug, is estimated to have a capacity of around 1,500 units annually (data has not been published since 2018, coinciding with Ukraine’s gradual withdrawal from the CIS). Output is expected to be decimated in 2022, with an uncertain outlook beyond the immediate crisis.

Russian OEMs: Overall Russian truck output in 2021 rose to its highest level since 2017. Production and sales of Heavy Trucks rose robustly in December, which was attributed to a number of active construction projects and high replacement demand resulting from an ageing parc.

Western OEMs with Russian assembly operations: As of 28 February, Daimler Truck has suspended cooperation with KamAZ; Volvo Trucks has halted all production and sales in Russia.

*Contact LMC for your forecasting needs –forecasting@lmc-auto.com

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