BMW, Ford, Volkswagen, Toyota, and a long list of other giant automakers are pulling out of Russia. What was at first overseen as a good investment opportunity flipped sides, and now these giant automakers are facing problems.
Problems and BMW are well-correlated together, but this time things are not exactly the same. The Russian invasion of Ukraine has put the Russian side up against so many economic sanctions that are destroying world trade in more than one way. More specifically, the Bayerische automaker who had just invested over $ 300-million in a new production plant is pulling out, and here is why.
BMW Avtotor Bottlenecking Operations
To kick things off, BMW has partnered with Avtotor - an automobile manufacturing company located in Kaliningrad. This is not the first time we are seeing a luxury brand operate in third-world countries and choose their cheap labor to assemble cars.
In fact, Avtotor has been a favorite location for many car companies in recent decades. Hyundai Motor Company, Kia, BMW and General Motors are some of the most popular names in cooperation with the Avtotor plant. Interestingly enough, this plant also produces cars and vans for the Chinese market with Nanjing Automobile Corporation.
The BMW scenario stretches from Bavaria to Kaliningrad. BMW sends their semi-knockdown kits to the Kaliningrad production plant, where everything is put together in a long, manual process. The BMW 3 and 5 Series sedans and crossovers like the X3, X4, X5, and X6 have been manufactured at Avtotor until the recent announcement.
BMW said: "We condemn the aggression against Ukraine and follow developments with great concern and dismay."
In a statement to the Wall Street Journal, a BMW spokesperson said: “we will stop our local production and export for the Russian market until further notice," citing "the current geopolitical situation”.
Further Implications Will Soon Hit BMW
On top of what we already know, experts say the auto industry might face another loop similar to the Covid-19 chip shortage. This time automakers have to rely closely on Russia as it’s the major supplier of Neon, which is a raw material that goes into the production of semiconductors. A lot more than raw materials will also implicate the supply chains of automakers in Europe. The increasingly rising fuel prices can drive operations to bottlenecks or greater inflation. As car buyers, we all don’t want this as it will either cost us more or we might see automakers drop in quality.
At further notice, BMW also mentioned that they might put their production plants at idle because of the current situation in Ukraine. As we discussed in another story, Volkswagen is idling some of its electric vehicle plants because of the wiring harness problem. A lot of the companies that supply wiring harnesses for these German brands are located in Ukraine, where the war threat has halted operations. In response to the current situation, BMW made it official that it will stop exports to Russia, alongside Volkswagen Group and Mercedes-Benz.