The shrinking component crisis has shaken Tesla, Volvo and many other manufacturers

The semiconductor crisis has already strained the automotive sector and now a new crisis is looming.

The year 2024 is off to a flying start for the automotive sector, but not in a good way. The Red Sea, a geopolitical hot spot, has created a crisis that has hit automotive conglomerates including Tesla and Volvo (of Chinese conglomerate Geely). They had to stop a good part of their production in Europe. Trouble? It is short of ingredients due to attacks on ships passing that way.

Tensions in Yemen region

Indeed, rising tensions in the Yemeni region with Iran’s support for the Houthi militias have contributed to increasing instability. This situation is further complicated because it is part of a wider conflict involving Israel and Hamas. All this is disrupting one of the world’s most important sea lanes. The route is a bit like a commercial highway for the auto and electronics industry, carrying 12% of global container traffic.

Recently, the United States and the United Kingdom have retaliated to stabilize the region and secure sea lanes vital to the global economy. Meanwhile, the United Nations Security Council has adopted a resolution calling for an immediate end to attacks on merchant and commercial ships.

In this regard, several shipping giants such as Maersk and Hapag-Lloyd have chosen alternative routes bypassing Africa. Although these journeys are safer, they add up to 10 days of travel time and result in significantly higher fuel costs.

Production cuts in European factories

Faced with these challenges, Tesla announced Reuters that it was going to curtail production at its Berlin factory from January 29 to February 11, which would affect Model Y production. As part of that, Volvo closed its Ghent (Belgium) factory for a few days, where the C40 model is made. Assemble and XC40, but soon EX30.

For the moment, other manufacturers such as Stellantis, Volkswagen, BMW or Renault are not affected. Stellantis (which notably owns Peugeot, Citroen, Fiat and Jeep) nevertheless had to turn to air transport to make deliveries.

It is important to remember that these automotive groups rely heavily on Asia, especially China, for their electric car components. Moreover, China is represented 67% of European imports of battery components for electric vehicles, and the bulk of lithium-ion batteries. These figures from S&P Market Intelligence show how dependent Europe is and how quickly the effects of these disruptions can be felt. Volvo and Tesla are therefore undoubtedly the first to talk about it, but other car manufacturers are affected by the current crisis in the Red Sea.