Red Sea shipping crisis prompts Tesla and Volvo to delay output

Automakers Tesla and Geely-owned Volvo said they are suspending some production in Europe due to a shortage of components, the first clear sign that attacks on shipping in the Red Sea are hitting manufacturers in the region.

The US and Britain launched a series of strikes on Yemen on Thursday, aimed at the Iran-backed Houthi militia whose attacks on international shipping have disrupted one of the world’s most important shipping routes.

Container shipping rates jumped further last week as concerns grew that vessels carrying everything from clothes to phones and car batteries will have to avoid the Suez Canal, the fastest route between Asia and Europe, for longer than expected.

The biggest supply chain upheaval since the Covid-19 pandemic risks derailing the global economic recovery, while higher freight and oil prices could reignite inflation. The canal accounts for about 12% of global container traffic.

Tesla said last week it will suspend most car production at its factory near Berlin from January 29 to February 11, citing a lack of components after many ships were rerouted around the southern tip of Africa.

“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 effect on production in Gruenheide,” a Tesla statement reads.

“The considerably longer transportation times are creating a gap in supply chains.”

It did not say what components were delayed arriving at the factory, where it assembles electric vehicles for sale in Europe.

Ceased traversing

Volvo Car said it will pause output at its plant in Ghent, Belgium, for three days next week due to a delayed delivery of gearboxes.

Some tanker operators have ceased traversing the Red Sea after the US and British air strikes on Yemen’s Houthis, as regional conflict stemming from Israel’s war in Gaza widens.

Adding to the logistical headaches hampering trade, low water levels due to drought have reduced crossings of the Panama Canal.

Shipping giants such as Maersk and Hapag-Lloyd have been sending their vessels on the longer, more expensive journeys around Africa.

Maersk said on Friday it expects the rerouting, which adds about 10 days and about $1m in extra fuel to a journey from Asia to Northern Europe, to last for the foreseeable future.

Both companies on Friday welcomed moves to improve security for shipping in the region, but did not say if Thursday’s strikes will make a difference.

Other automakers could also suffer shortages from the Red Sea conflict, said Sam Fiorani of AutoForecast Solutions, which tracks automotive supply chains and production.

“It can’t be believed that they are alone, only the first to reflect the issue.”

Stellantis said it has seen “almost no effect” on manufacturing and has used air freight in limited instances.

BMW, Volkswagen and Renault said on Friday production was not affected.

But EU carmakers rely heavily on Asia for EV supplies.

The region accounted for 67% of EU imports of components for EV batteries in the 12 months to September 30 and just more than two-thirds of lithium-ion batteries shipments, according to S&P Market Intelligence data.

Carmakers and analysts in Europe have warned in recent months that EV sales were not growing as fast as hoped, with some companies cutting prices in an attempt to boost demand.

Reuters