Proximity to the border with the EU, cheap labor and sufficient raw materials make Ukraine attractive to partners of European auto giants.
In Ukraine, small parts are made for almost all European cars, including premium brands. These are mostly parts that require a lot of manual work, such as laying cable networks or sewing car seats.
According to Ernst & Young, there are 22 global and regional manufacturers of car parts in Ukraine. These companies have created about 60 thousand jobs, and the total investment in the sector is €400-800 million.
The main part of foreign companies-manufacturers of auto components is concentrated in Western Ukraine. This choice of the region is primarily due to the logistical proximity to end-users.
"Ukraine has been and is interesting for the production of car parts. Ukraine has a developed infrastructure, free production sites and industrial parks, affordable and competitive skilled labor, competitive operating costs," explains Serhiy Tsivkach, executive director of the government office for investment attraction and support of UkraineInvest.
The most popular Lviv region, located 96 km from the EU border. Thanks to this, products from the Lviv region can be delivered by truck to any European country in just one day. In addition, local authorities promote such investments as much as possible.
"When looking for a location for production, companies take into account the availability of raw materials, energy resources, labor and proximity to the consumption market. The first three factors are available to companies throughout Ukraine, the fourth — only in Lviv region. The product produced in the Lviv region enters the market of any European country, except Spain and Portugal, in one day," said Roman Matys, former head of the investment policy department of the Lviv regional state administration.
According to him, 20-25 years ago, large European companies preferred sites in Poland, Slovakia, Romania, Hungary and the Czech Republic when choosing a site for the construction of plants. Now they are choosing Ukraine. Over the past five years, several large factories have opened in Ukraine, producing cable assemblies for the European automotive industry. For most of their owners, this is the second or even third plant in Ukraine.
About half of the plants produce cable networks.
In 2013, the Japanese company Fujikura entered the Ukrainian market, specializing in the manufacture of cable products for cars of the German concern Volkswagen Group, including Porsche and MAN.
In three years, Fujikura has opened two plants near Lviv, employing about 2,000 people. Later, the company announced its intention to open two more plants — in Vinnytsia and Cherkasy — for 1,5 thousand jobs each. Two years later, the company opened a branch of the plant in Nemyriv (Vinnytsia region of Ukraine), which employed 800 people.
The German company LEONI has been operating in Ukraine since 2003. It manufactures cable networks for Opel, Porsche, Volkswagen, Audi, Lamborghini and MAN. Until recently, only one of their plants operated in Ukraine — in Stryi town, Lviv region.
In 2017, the German company built a second plant in the city of Kolomyia in the Ivano-Frankivsk region. About 1.5 thousand people work there, and the plant is expanding. Prior to quarantine, the company stated that the number of employees by the end of 2021 will increase to 3,5 thousand.
According to the company's report for 2020, at the end of 2020, more than 5,9 thousand workers worked at both LEONI plants. This is almost half a thousand less than in the pre-quarantine year 2019.
In 2017, Elektrokontakt Ukraine, a division of the German company Elektrokontakt GmbH, built a plant for the production of cable products in Brody, Lviv Region. The latter belongs to the famous French concern Nexans.
This is the company's third and largest plant in Ukraine, employing 2,500 workers. The plant manufactures cable networks for BMW, Opel, Audi, Mercedes and Porsche. Similar plants operate in Przemyśl and Zolochiv. The company in the crisis year 2020 showed even better financial results than in 2019. According to the report, the net profit of the plants amounted to almost UAH 32 million, while in 2019 — a little more than UAH 24 million.
Another manufacturer of electric cable products for cars — Sebn — is slowly moving east. In Ukraine, a German-Japanese machine-building company opened its first plant in 2006 in the Ternopil region. Seven years later, Sebn opened two more plants during the year. The first is in Chortkiv in the Ternopil region, the second is in Chernivtsi. Three years ago, the group opened its fourth Ukrainian plant in Khmelnytsky.
The plant, owned by a German company with a 120-year history, Kromberg & Schubert, is located in Lutsk. Under its roof, electric onboard cable systems are manufactured for BMW, Audi, Mercedes and Volkswagen cars. Production in Lutsk has launched 15 years ago, employing 5,5 thousand Ukrainians. The figure may seem small, but it is 2% of the population of the regional center and more than 10% of the staff of Kromberg & Schubert in 35 countries. In 2016, the company opened another plant, this time in Zhytomyr, which employed 2,000 people.
Although cable products are the most popular in the production of auto parts in Ukraine, the range of products is much wider. In 2017, a joint venture was opened in the Lviv region by two large companies — Bader and Aunde, engaged in sewing seat covers Audi, Mercedes and BMW, including the premium segment — Mercedes-Benz S-Class and Maybach. Interestingly, among the company's customers is even the American Tesla.
Bader GmbH manufactures leather upholstery for seats, armrests, steering wheels, doors, instrument panels, gear levers. Aunde specializes in fabric seat covers. This is Bader's third plant in the Lviv region since 2006 and the first for Aunde in Ukraine. In total, Bader plants in the region employ about 3,000 people. The Bader-Aunde Ukraine joint venture employed 800 people.
Since 2003, ODW-Elektrik has been operating in the Lviv region, in Novy Rozdol, producing cables for Volkswagen, BMW, Porsche, Volvo, Opel cars, magnetic coils, electromechanical structures for cars and motor tools.
There are also companies in Ukraine that receive orders for small batches of small products for well-known car brands. Thus, the Mukachevo plant Tochprilad produces speakers, which are equipped with Land Rover and BMW cars.
A branch of the German company Bosch assembles and repairs starters in Krakow, Lviv region, which are installed on cars of many world manufacturers.
A plant of the German company Kostal, which specializes in the production of automotive electronics, operates in Pereyaslav-Khmelnytskyi, Kyiv Region. It produces steering columns, switches, contact systems for Ford, DAG, Audi, VW, Renault, Lamborghini, BMW, SEAT and Skoda.
"According to UkraineInvest estimates, due to relocation, Ukraine can attract from 550 million to $1 billion a year. The production of auto parts can be one of the components of production relocation," says Tsivkach.
Several thousand components are required to produce a car. The fine for stopping the conveyor can cost 50 thousand euros per minute. To avoid such penalties, most companies extend the delivery time.
"As reported by some first-tier manufacturers, delivery times from second-tier component suppliers have increased from 15-20 days to 200-300 days. Ukraine is located near most European OEMs (Original equipment manufacturers), so logistics costs are minimal. That is why Ukraine is an ideal place for relocation of most companies from Asia," Tsivkach emphasizes.
Several companies are preparing to open production. The Irish global technology company APTIV has announced the launch of the fourth Ukrainian plant for the production of electric cable products for cars in Cherkasy by the end of 2021. "Aptiv Service is one of the world's most powerful manufacturers of services and electrical cable equipment for major car brands: Audi, Mercedes-Benz, Fiat, Škoda Auto. Currently, active staff training is underway.
The first employees will be 300 specialists, and in a year and a half the staff will grow to 3-3.5 thousand people," said Olga Magaletskaya, head of the office of the National investment council under the president of Ukraine.
What Ukraine can offer to large investors
In addition to convenient logistics, resources and cheap labor compared to EU countries, Ukraine can offer investors state investment support and tax benefits.
These are the law On state support of investment projects with significant investments in Ukraine, adopted in February 2021, and the tax regime for the IT industry Diia.City, adopted in the first reading. "The production of automotive electronics requires the involvement of developers and high-end professionals. The Diia.City mode will be beneficial primarily for developers, designers and engineers in the automotive industry in terms of the tax burden because it allows you to pay only 6,5% of taxes," said Magaletskaya.
There is interest in creating centers for highly qualified workers in the automotive industry in Ukraine. According to Matys, before the quarantine began, three automakers wanted to open research enterprises in Lviv. "They really liked the fact that there is a technical university in Lviv where some technical subjects are taught in English. Two companies — Draexlmaier (car supplier) and BMTS Technology (developer and manufacturer of exhaust turbochargers) — have stated this publicly," says Matis.
Another advantage for large investors is the law on investment support. The production of car parts will be subject to the law if the investment exceeds €20 million. In this case, the state can provide support for up to 30% of such investment.
