Volvo and Tesla have temporarily halted production at their European plants.

This is due to supply disruptions caused by recent attacks on freight vessels in the Red Sea.

Following on from car parts shortages after Covid lockdowns, higher fuel prices due to the war in Ukraine, this latest global uncertainty could cause huge disruption and price hikes.

Slow boats

Volvo’s Ghent factory in Belgium will pause output for three days. This comes as some ships are rerouted to avoid violence, in this case, delaying the delivery of XC40 and C40 gearboxes.

Tesla will suspend most car production at its Berlin factory from January 29 to February 11 due most likely to the impacted supply of batteries.

Stellantis is also addressing supply interruptions by relying on air freight, compensating for rerouted vessels. However, they claim they have suffered minimal impact on manufacturing to date.

Volkswagen meanwhile is closely coordinating with shipping companies to assess the situation’s impact on production. At present, they expects few significant restrictions.

Other car makers such as BMW and Renault said production has not been affected.

Taking aim

The disruptions stem from attacks by Iranian-backed Houthi militants that are targeting container vessels’ routes through the Suez Canal.

Major shipping companies like Maersk and Hapag-Lloyd have shifted vessels to the longer Cape of Good Hope route. This causes delays, increased shipping costs and additional surcharges.

The re-routing adds around $2 million in fuel costs for each Asia-Northern Europe round-trip. Maersk anticipates that this situation will persist for the foreseeable future, causing prolonged disruptions and rising costs in global ocean freight shipping.

Winners and losers

Commenting on the supply chain vulnerability due to the Red Sea disruption, Paul Barker, managing editor, at Carwow says: “While this development is not completely surprising, it is certainly unwelcome news for Tesla. However, manufacturers do typically have a better handle on supply chain crisis management in the wake of the chip-related disruption that followed on from Covid”.

Barker believes that if the situation gets worse, then we will again see a rise in second-hand car prices.  This will undoubtedly lead to “increase in demand, and increase in value, of good-condition second-hand cars”.

“Used car prices have been falling recently from historic highs, so I’m sure Europe’s whole automotive industry will be keeping a close eye on the on-oing geo-political developments in the Red Sea.”

Meanhwhile, Patrick Lepperhoff, principal at Inverto believes manufacturers need to have alternative plans in place. “The costs may be higher, but a loss of production or empty shelves would be far more expensive.”