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Russia-Ukraine conflict could impact consumer electronics and automotive supply chains; Ora stops taking mini EV orders

Tom Lo, DIGITIMES Research, Taipei 0
This Asia tech industry summary will mainly focus on the Russia-Ukraine conflict impacting Taiwan-based and South Korea-based consumer electronics companies in Russia, global automakers facing potential challenges brought by the Russia-Ukraine war, and China's Ora announcing its decision to stop taking mini car orders.

Introduction

This Asia tech industry summary will mainly focus on the Russia-Ukraine conflict impacting Taiwan-based and South Korea-based consumer electronics companies in Russia, global automakers facing potential challenges brought by the Russia-Ukraine war, and China's Ora announcing its decision to stop taking mini car orders.

As the Russia-Ukraine conflict intensifies, many countries have placed economic sanctions on Russia, which will likely affect global consumer electronics suppliers that have high market share in Russia. South Korea-based and Taiwan-based companies are concerned about the impacts of the US's Foreign Direct Product Rule (FDPR). Media outlets in South Korea suggested that the country could ask for an exemption from the US's export restrictions on Russia.

The automotive industry could also be impacted by the ongoing Russia-Ukraine war. Renault and Hyundai face the largest risks due to their high market share in Russia. Other automakers are facing potential supply chain disruptions and price increase of raw materials. DIGITIMES believes that the scale of the impacts will hinge on how long the war lasts.

Great Wall Motor's electric vehicle (EV) brand Ora recently announced that it will stop taking mini car orders due to substantial losses. The company said it has yet to fulfill orders of 20,000 mini cars due to automotive chip shortage. After SAIC-GM-Wuling Automobile saw successful sales of its Hongguang mini EVs, China-based automakers have placed their focus on mini cars in the last few years. However, with the ongoing automotive chip shortage and the price increase of automotive raw materials, automakers in China could gradually lose their interest in mini cars.

Table 1: Asia tech industry summary, Feb 26- Mar 5

Industry

Topics

Updates

Semiconductor

Kyocera receives UL certification for its semiconductor packaging materials

In January 2021, media reports suggested that Kyocera had improperly identified some of its semiconductor packaging materials as UL (Underwriters Laboratories) certified. One year later, Kyocera announced its return to the semiconductor packaging market by noting that 372 of its products have now received certification from UL.

UMC sets up new 12-inch fab in Singapore for 22/28nm processes

UMC will construct a new 12-inch fab in Singapore next to its existing Fab12i. Dubbed Fab12i P3, the new facility is expected to enter volume production by the end of 2024 with a monthly production capacity of 30,000 wafers. With total investment estimated at US$5 billion, it will be constructed for 22nm and 28nm process manufacturing.

Electronic component

Omron plans to generate JPY 120 billion in profit in 2025

In its mid-term plan revealed on March 1, Omron is aiming to generate JPY 120 billion (US$1.045 billion) in profit in 2025. The company will operate with an emphasis on industrial automation and healthcare. It expects its industrial automation business to achieve an annual profit of JPY 106 billion and its healthcare business to achieve an annual profit of JPY 28 billion in 2025.

FANUC adds 3 models to CRX cobot series

FANUC has rolled out three new cobot models that provide a 5-25kg payload. It will also expand the production of its two existing models that feature a 10kg payload. The three new cobots are expected to enter volume production by June 2022. The model with a 5kg payload will be used in confined spaces, while the one with a 25kg payload will be used at auto parts manufacturing sites.

Tech product

South Korea wins FDPR exemption for export to Russia

?According to Yonhap News, the South Korean government announced on March 3 that the US Bureau of Industry and Security (BIS) has made it clear that South Korea's smartphones, cars, and other consumer goods are not subject to the FDPR.

EV and automobile

Sunwoda Electronic invests CNY 12 billion to build new battery plant

China-based lithium-ion battery supplier Sunwoda Electronic plans to invest CNY 12 billion (US$1.89 billion) to construct a battery production facility with an annual capacity of 30 GWh in Zhuhai. The company raised CNY 2.43 billion last week from a consortium of investors including XPeng, NIO, Li Auto, SAIC Motor, and GAC Group. Industry observers believe that Sunwoda is developing into a competitor of CATL.

Toyota temporarily halts operation due to cyber attack

Toyota suspended production at 14 plants in Japan for 24 hours after its components supplier Kojima Industries suffered a cyber-attack on February 28. The suspension caused some problems to part of the production lines of its affiliates Hino Motors and Daihatsu Motor. On March 2, Toyota said all production had resumed. The temporary shutdown led to a 5% drop in Toyota’s monthly production or the loss of about 13,000 cars.

Mitsubishi Motors to suspend production at Russian plant

Due to the Russia-Ukraine conflict and the global economic sanctions against Russia, Mitsubishi Motors will suspend production at its plant in Kaluga, Moscow. Operated by Mitsubishi and Stellantis, the facility had been unable to import components from Japan or Thailand. It is mainly used to manufacture SUVs and has an annual production capacity of 21,000 units.

Russia-Ukraine conflict causing price of EV battery cathode materials to rise

Russia accounts for 9% of the world's nickel production and 6% of aluminum. Nickel is a key material for making EV battery cathodes. The London Metal Exchange (LME)'s nickel price shot up to US$25,000 a ton on February 25, the highest price seen in 10 years. LME's nickel inventories have fallen to 82,000 tons from more than 260,000 tons last April. Meanwhile, its aluminum inventories have fallen to 835,000 tons from nearly two million tons last March.

Foxconn plans to build electric bus ecosystem in Kaohsiung

Foxconn said March 3 that it is planning to build an electric bus ecosystem in Kaohsiung. Its subsidiary Foxtron Vehicle Technologies has delivered 30 of its Model T electric buses to the Kaohsiung City Government. Foxconn is expected to launch its first electric bus battery in 2023.

TECO targets power system solutions for EV four-wheelers and certain commercial EVs

TECO will beginning shipping its new T Power+ EV power system in April 2022. The company expects to ship between 1,300-1,500 units for the whole year.

Source: Compiled by DIGITIMES Research, March 2022

Companies with high Russia market share could face war impacts

After Russia initiated its attacks on Ukraine on February 24, the US and some European countries have imposed harsh economic sanctions on Russia as a response. On February 27, the European Union, the US, the UK, and Canada banned Russian banks from using SWIFT (Society for Worldwide Interbank Financial Telecommunication) and halt exports of semiconductor, telecommunications, and sensing components to Russia.

Following the announcements of the sanctions, East Asian countries that rely heavily on ICT product exports began evaluating the impacts the restrictions would have on their economies. South Korea believes it would suffer the worst impacts.

Samsung Electronics and LG Electronics are expected to see their mobile telecommunications device and home appliance businesses greatly impacted by the sanctions. Based on data from GS Group and IDC Russia, Samsung Electronics has the largest share in Russia's smartphone market than any other companies. Its share had increased from 26% in 2018 to 31.6% in 2021.

Samsung's smartphone business in Russia had benefited from the US government's sanctions on Huawei in 2020 amid the US-China trade war. Samsung and Xiaomi had taken over the 10% share that Huawei's subsidiary Honor had in Russia.

Table 2: Samsung's smartphone market share in Russia

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Source: GS Group, IDC Russia, M.Video-Eldorado; compiled by DIGITIMES Research, March 2022

For home appliances, data from the Observatory of Economic Complexity suggested that Russia is the world's 12th largest exporter of washing machines. In 2019, the country imported US$290 million worth of washing machines. LG and Samsung are in the first and third place, respectively, in terms of the washing machine market share in Russia. South Korea-based washing machine suppliers are extremely concerned about the impacts the global economic sanctions on Russia could bring.

Table 3: Top washing machine suppliers to Russia

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Note: * acquired by China's Haier in 2018
Source: Statista; compiled by DIGITIMES Research, March 2022

Taiwan-based PC suppliers, including Acer, Asus, and Gigabyte, are also paying close attention to the Russia-Ukraine situation and the economic sanctions on Russia.

Acer and Asus have the third- and fourth-largest PC market share in Russia. In 2020, Acer accounted for 17.1% share of Russia's PC market, falling slightly behind HP and Lenovo.

Table 4: Acer, Asus have third- and fourth-largest PC market share in Russia

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Note: PC refers to laptops, desktop PCs, and tablets; 2021 numbers are estimations
Source: IDC Russia; compiled by DIGITIMES Research, March 2022

Meanwhile, major motherboard supplier Gigabyte partnered with Russian internet giant Yandex, LANIT, and VTB Bank in October 2021 to construct a server manufacturing plant in the Russian city of Ryazan. The facility was originally slated to begin production by the end of 2022.

Further observation is still needed to determine how well the economic sanctions on Russia would impact the industries mentioned above. According to ET News, the BIS told the South Korean government that smartphones, cars, washing machines, and other consumer goods are not subject to the FDPR unless they are sold to military-end users.

In the future, foreign companies and their subsidiaries in Russia can also apply for a case-by-case exemption from the FDPR. Companies that are shipping products to Russia before March 26 could also apply for a temporary FDPR exemption approval.

Countries that have imposed sanctions on Russia, such as Australia, Canada, and Japan, are eligible to apply for an FDPR exemption. For countries that have not imposed sanctions on Russia, such as South Korea, China, and India, they will need BIS's approval to be included in the US' list of exempt countries.

Global companies are also concerned about the devaluation of the Russian ruble, which could lower their actual profits. Apple announced on March 2 that it will stop selling products from its Russia locations due to humanitarian reasons. Industry analysts believe the move might have also been triggered by the plunging Russian ruble. In November 2021, Apple halted online sales in Turkey due to the sharp devaluation of the Turkish Lira.

How China-based smartphone makers respond to the Russia-Ukraine conflict should also be further monitored. Although Samsung and Xiaomi took over Huawei's smartphone market share in Russia amid the US-China trade war, the Chinese government has not made it clear whether it would place economic sanctions on Russia. As a result, China-based smartphone makers are uncertain if they should aim for a larger smartphone market share in Russia. Meanwhile, Russia's potential GDP drop could help China-based smartphone makers that offer relatively affordable products become more popular among Russian consumers. In 2021, Xiaomi's Redmi smartphones were among the top five most sold smartphone models in Russia. This shows that affordable smartphone makers have a certain advantage in the Russian market.

Table 5: Top 5 most sold smartphone models in Russia

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Source: GS Group, IDC Russia, M.Video-Eldorado; compiled by DIGITIMES Research, March 2022

Renault, Hyundai face possible impacts from economic sanctions on Russia

As the western countries expanded their sanctions on Russia, the automotive industry could also be impacted.

According to Avtocar, Russia is the world's 11th largest automotive market in 2021 with an annual sale of 1.53 million cars. In the same year, Canada sold 1.64 million units, Italy sold 1.46 million units, and the US sold 14.95 million units.

Market data showed that the car brand vendor with the largest market share in 2021 was Russia-based Avtovaz with an annual sale of 351,000 units, followed by Kia's sale of 215,000 units, Hyundai's sale of 167,000 units, Renault's sale of 132,000 units, and Toyota's sale of 98,000 units.

Since the Renault Group holds over 50% stake in Avtovaz, the company's total annual sale of 483,000 units gave it a 31.4% share in Russia's automotive market in 2021. Trailing behind it was the Hyundai Group, which had a sale of 382,000 units and a market share of 24.8%.

Table 6: New car sales in Russia, 2019-2021 (10,000 units)

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Note: (+ -) implies the positive/negative shift in ranking compared to 2020
Source: Avtocar, Drive.ru; compiled by DIGITIMES, March 2022

After the Russia-Ukraine war broke out, global media outlets have been generally pessimistic about the sales prospects of Renault and Hyundai in Russia in 2022.

Media outlets in South Korea said the economic sanctions on Russia will prevent Hyundai from reaching its goal of selling 5.467 million cars overseas in 2022. They also suggested that one of Hyundai's car factories in Russia would suspend production in early March and that the company's Russian factories could be forced to cease operation in the future.

The New York Times noted that Russia is Renault's second largest market and that the company operates two factories in Russia. Based on its 2021 financial reports, Renault posted consolidated revenues of EUR 40.4 billion (US$44.176 billion) in 2021, including EUR 2.85 billion from Avtovaz. It is expected that Renault would suffer some impacts from the global economic sanctions on Russia.

The global automotive industry is also facing potential challenges brought by the Russia-Ukraine war, such as supply chain disruptions, raw material shortages, and material price increases. Volkswagen said March 1 that it had suspended production at its Germany plants since its suppliers in Ukraine had trouble shipping components. Mitsubishi Motors also halted operation at its factory in Kaluga, Russia due to export restrictions against Russia.

Russia is a major exporter of oil, natural gas, iron, aluminum, and nickel. It was the world's fourth-largest aluminum producer in 2021, accounting for 5.2% of the world's aluminum production. The stable supply of aluminum is crucial to manufacturers of EV battery cathode materials and lightweight automobiles.

Despite the potentially negative impacts, there could be some positive impacts of a poorly performing Russian automotive market on global carmakers. According to DIGITIMES, if the Russia-Ukraine war does not drag on, it could help improve the automotive chip shortage and raise demand for EVs. However, if the war lasts longer, it will likely bring negative impacts to the global automotive industry.

Table 7: Potential impacts of Russia-Ukraine conflict on automotive industry

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Source: Avtocar, USGS, 61 Financial; compiled by DIGITIMES, March 2022

Ora stops taking Black Cat, White Cat mini EV orders

Great Wall Motor's EV brand Ora recently announced that it will stop taking orders for its A00 Black Cat and White Cat mini EVs due to substantial losses. Although mini EVs once drew attention from China-based automakers, Ora's announcement shows that mini EVs are losing their popularity in China.

In late February, Ora CEO Dong Yudong published a post through the company's app announcing that the company will stop taking orders for its Black Cat and White Cat mini EVs due to substantial losses. After the price of raw materials rose sharply in 2022, the loss of a single Black Cat has exceeded CNY 10,000, he explained, adding that the company has yet to fulfill orders of 20,000 Black and White Cat models due to raw material shortage. Dong noted that Ora has sold a total of 173,000 Black and White Cat models since they were launched.

Established in August 2018, Ora launched its first model "Black Cat" in December of the same year. Its "White Cat" model debuted in July 2020. In October 2020, Ora unveiled its first SUV EV "Good Cat" and began shipping it to Thailand in October 2021. According to the China Passenger Car Association (CPCA), Ora sold a total of 135,000 EVs in 2021, including 88,000 Black and White Cat mini EVs.

In China, cars are sorted into different segments (A, B, C, D) based on their wheelbase and engine displacement. Cars placed in A segment can be divided into even smaller segments, such as A00, A0, and A. The same segmentations can be applied to EVs, and A00 is considered a key segment of the Chinese EV market.

A00 mini EVs were once the heart of China's EV market. According to CPCA, a total of 28,300 A00 mini EVs were sold in China in 2014, accounting for 69% of the country's passenger EV sales. After sales of A00 mini EVs increased to 310,000 units in 2017, the share of A00 mini EVs in passenger EV sales began to plummet in 2018. In 2019, the sales of A00 mini EVs dropped to 230,000 units, accounting for only 27% of China's passenger EV sales that year.

Chart 1: Sales and market share of A00 mini EVs in China (10,000 units)

Source: Economic Daily, CPCA; compiled by DIGITIMES Research, March 2022

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