Major Manufacturers Halt Production In Europe Amid Red Sea Shipping Attacks

Due to a lack of vital components, automakers like Tesla and Geely-owned Volvo Car declared they would halt part of their European production. This is a firsthand indication that the attacks on Red Sea shipping are impacting the regional manufacturers. The Houthi militia, which is supported by Iran and has interrupted one of the most significant maritime routes in the world, is the target of a series of strikes that the USA and Britain started on Thursday in Yemen.

Tesla informed Reuters on Thursday that it would stop most car manufacturing at its factory close to Berlin from January 29 to February 11 due to a shortage of parts after multiple vessels were diverted via Africa’s southernmost point. Based on a Tesla statement, manufacturing in Gruenheide is being impacted by the military conflicts in the Red Sea and the resulting changes in the transportation routes connecting the continents of Europe and Asia across the Cape of Good Hope.

The significantly longer journey times have caused a gap in supply chains. The delayed components arriving at the factory, which assembles electric automobiles for sale in Europe, were not disclosed. Due to a delayed gearbox delivery, Volvo Car, which China’s Geely mostly controls, said it would stop production at its plant in Ghent, Belgium, for three days the following week.

Due to the growing regional tension resulting from Israel’s assault in Gaza, some tanker operators have stopped their operations in the Red Sea after airstrikes by the U.S. and Great Britain on Yemen’s Houthis. Low water levels brought on by the drought have decreased crossings of the Panama Canal, a further vital maritime trade route, adding to the logistical challenges impeding trade.

Shipping giants like Hapag-Lloyd and Maersk have been sending out their vessels on longer and more expensive routes via Africa. Last Friday, Maersk declared that it expects the re-routing, reportedly adding about ten days and almost $1 million in extra fuel to a journey to Northern Europe from Asia, to last for the foreseeable future. On Friday, both firms welcomed strategic decisions to boost security for shipping in that region but did not disclose if Thursday’s strikes would bring a significant difference.

Many firms, including Geely, the second-largest automaker in terms of sales in China, Swedish IKEA, and British clothes retailer Next, have warned of delays in product deliveries. U.S. retailers Target and Tractor Supply are facing delays.
Target encountered delays for items from Pakistan and India, major apparel suppliers. However, a source stated that most imported merchandise comes across the Pacific and remains unaffected.

Colin Yankee, the chief supply chain officer with Tractor Supply, said there were delays of two to more than 20 days on some products, even though spring merchandise is mainly in or will be in very soon. To prevent shelves from being vacant in the northern hemisphere spring, some shops are stocking up ahead of China’s Lunar New Year and looking for alternatives to air or train transportation.

Seth Frederickson, VP of Product Management at FourKites, stated that he is expecting to observe product shortages on shelves in April and May if the Red Sea disruption lasts further for, say, two or three weeks. The Red Sea dispute may cause shortages for other manufacturers, says Sam Fiorani of AutoForecast Solutions, which monitors car production and supply chains. In NY trading, Tesla shares dropped 3.7%, while Volvo Cars dropped 2.8% in Stockholm.

Stellantis claimed to have almost zero impact on production and to have only sometimes used air freight. Renault, Volkswagen, and BMW announced on Friday that output was unimpacted. However, E.U. carmakers heavily depend on Asia for their E.V. supplies. The zone accounted for 67% of E.U. imports of components for E.V. batteries in the 12 months to September 30 and a little over two-thirds of lithium-ion battery shipments, per S&P Market Intelligence data.

Many European carmakers and analysts have warned over the past few months that E.V. sales were not expanding as fast as it was hoped, with some firms cutting prices to boost demands.

Reference: Reuters

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