Berlin/Stockholm — Due to a lack of components, automakers Tesla and Geely-owned Volvo Car announced that they were stopping part of their production in Europe. This is the first concrete indication that the attacks on ships in the Red Sea are affecting the manufacturers in the area.
The Houthi militia, which is supported by Iran and has interrupted one of the most significant maritime routes in the world, was the target of a series of airstrikes that the United States and Britain conducted on Thursday against Yemen.
The cost of shipping containers increased this week because to growing concerns that ships transporting everything from clothing to phones and car batteries will have to spend more time than anticipated avoiding the Suez Canal, which is the quickest route between Asia and Europe.
Increased freight and gasoline prices might restart inflation, and the largest supply chain disruption since the COVID-19 pandemic poses a risk to the global economic recovery. Roughly 12% of all container traffic worldwide is handled by the canal.
Due to a shortage of parts following the rerouting of numerous ships at the southern tip of Africa, Tesla informed Reuters late on Thursday that it will be halting most car manufacturing at its factory near Berlin from January 29 to February 11.
“The armed conflicts in the Red Sea and the associated shifts in transport routes between Europe and Asia via the Cape of Good Hope are having an impact on production in Gruenheide,” according to a Tesla statement.
“The considerably longer transportation times are creating a gap in supply chains.”
What parts were delayed in arriving at the factory where it assembles electric cars for sale in Europe was not disclosed.
The majority-owned by China’s Geely, Volvo Car announced that a delayed delivery of gearboxes will cause a three-day production halt at its Gent, Belgium facility next week.
Since the United States and Britain launched airstrikes against the Houthis in Yemen, some tanker operators have stopped operating in the Red Sea as the regional crisis resulting from Israel’s war in Gaza intensifies.
Drought-related low water levels have decreased Panama Canal crossings, which is another important maritime commerce route, adding to the logistical challenges impeding trade.
Fallout
Maersk and Hapag-Lloyd, two of the biggest shipping companies, have begun sending their ships on the lengthier, more costly trips around Africa.
Maersk stated last Friday that it anticipated the rerouting to last for the foreseeable future. It lengthens a trip from Asia to Northern Europe by around 10 days and costs an additional $1 million in fuel.
Although neither company stated if Thursday’s strikes will have an impact, they did applaud efforts on Friday to strengthen security for vessels in the area.
Numerous businesses, such as the Swedish home furnishings major IKEA, the British clothing retailer Next, and Geely, the second-largest automaker in China based on sales, have issued warnings about possible delivery delays.
In an attempt to prevent bare shelves this spring, several shops are considering air or train alternatives and stocking up before China’s Lunar New Year break.
“I anticipate product shortages on shelves in April and May if the Red Sea disruption lasts another two to three weeks,” stated Seth Frederickson, vice president of product management at FourKites.
According to him, larger, higher-end merchants may decide to employ more costly air freight, which will reduce their profit margins.
Concerns regarding the effect on manufacturing will be stoked by the actions taken by Tesla and Volvo. Other automakers could also experience shortages from the Red Sea battle.
AutoForecast Solutions’ Sam Fiorani, who monitors automotive supply chains and production, stated that relying on so many essential components from Asia, and particularly China, has been a potential weak point in any automaker’s supply chain.
“It can’t be believed that they’re alone, only the first to reflect the issue.”
Early in New York trade, Tesla shares fell 3%, while at 1504 GMT in Stockholm, Volvo Cars had a 3.7% decrease.
In its limited experience with air freight, Stellantis said it had observed “almost no impact” on manufacturing.
VW, BMW, and Renault announced on Friday that there was no impact on output.
For EV supplies, however, EU automakers mainly rely on Asia.
S&P Market Intelligence data shows that in the 12 months ending September 30, the region accounted for slightly over two thirds of shipments of lithium ion batteries and 67% of EU imports of EV battery components.
Recently, European automakers and analysts have cautioned that the growth of electric vehicle (EV) sales has not been as rapid as anticipated, despite some businesses lowering their costs to increase demand.