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People work at the construction site of Tesla's electric car factory in Gruenheide, near Berlin, Germany, on March 4.ANNEGRET HILSE/Reuters

In a media room in Brandenburg, a German state that skirts Berlin, various levels of government officials took to the stage Friday to announce with smiles that Tesla Inc. had received final approvals to begin production of electric cars and battery cells at two local factories.

It’s the largest single private investment in the former East Germany since the Berlin Wall came down in 1989, Brandenburg’s Minister President Dietmar Woidke told The Globe and Mail in Potsdam. But the positive economic news came in the shadow of a war that has shut down a swath of German automotive factories as the conflict in Ukraine dries up supplies of vital components.

Disruptions to train and ship connections as well as air traffic restrictions are “already having a significant impact on the supply and logistics chains” for automotive factories, according to Hildegard Muller, president of VDA, an automotive association interest group that represents both manufacturers and suppliers in Germany. And she only expects those problems to grow over the coming weeks and months.

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“Due to the very dynamic situation, a reliable outlook is difficult. But one thing is certain: There will be further impairments in the production of vehicles in Germany,” Ms. Muller said in an e-mail.

Already several car makers have had to halt or drastically scale back production in the country owing to delivery bottlenecks because of the war, including Porsche, Volkswagen, BMW and Mercedes-Benz.

A perfect example of the broader issue is a specific automotive part called the wiring harness. It runs throughout an entire vehicle carrying information about its performance and power, a bit like veins in the human body. Ukraine is one of two major suppliers of the part, which is so complex that manufacturers are unable to pivot production at short notice.

The industry is also facing scarcity and price increases of raw materials from Ukraine and Russia, such as neon gas, palladium and nickel, which are all used for various purposes in automotive manufacturing.

Stocks of intermediate products were already largely exhausted in some areas before the outbreak of the war owing to the COVID-19 pandemic, according to VDA.

Manufacturers in Germany exported about 40,000 vehicles to Russia and Ukraine last year. The bulk of those went to Russia, where German manufacturers also produced 170,000 cars.

Indeed, German manufacturers hold almost 20 per cent of the total market share in Russia, and the country’s automotive industry maintains more than 40 production sites in Russia and six in Ukraine.

Similar logistics issues are felt across Europe. In the small Nordic country of Finland, however, it seems that surging energy prices, which spiked to their highest levels since 2008, are causing the most pinch.

The fact the country juts out into the Baltic Sea “at the far end of a reasonably long sea route” means that rising energy-related costs are having an impact on both imports and exports, said Finland’s Under-Secretary of State for the Ministry of Economic Affairs and Employment, Petri Peltonen.

On top of that, the country’s national airline Finnair is feeling the brunt of air-space closings over Russia, with which Finland shares a border.

“Finnair has been operating a very broad range of quick connections across Russia to Asian destinations – China, Japan, Korea and many others. And those now have to be rerouted to our significantly longer northern roots, which is a significant challenge,” Mr. Peltonen said in an interview.

That has had an impact on both passenger and cargo air traffic, he said – yet another hit for an industry already struggling in the face of the pandemic.

“It’s really a double hit,” he said.

Exports to Russia make up only 5 per cent of Finland’s economy, but that number still puts the country among the highest in the EU, Mr. Peltonen said.

And while the country’s supply chain is diverse enough that economic sanctions against Russia won’t deal a crippling economic blow to Finland’s oil refining, metals processing and biofuels industries, the government is nonetheless preparing the kinds of contingency plans that Mr. Peltonen says the country excels at.

Back in Germany, Mr. Woidke, Brandenburg’s Minister President, didn’t seem overly concerned that the supply chain issues that have already hit other car makers in Europe would have an impact on Tesla; the company’s founder Elon Musk hadn’t mentioned it when they briefly spoke prior to the announcement of the new factories.

There’s a glimmer of a silver lining around the development, even despite the broader fears of fossil fuel shortages in case of full sanctions against Russian energy – an uncertainty that has already shaken global financial markets and sent oil and gas prices skyrocketing.

The Tesla facilities will be powered entirely by renewables, Mr. Woidke said.

Brandenburg produces more green energy than any other state in Germany. And it is planning to expand that capacity, adding to the 4,000 wind turbines it already has in operation and increasing its solar footprint.

“We will produce climate-friendly cars, and we will produce these climate-friendly cars being climate friendly,” he said.

“That’s the basis for the production.”

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