After the outbreak of conflict in the Middle East, the temporary blockade of the Strait of Hormuz is transmitting geopolitical risks to the automotive industry.

Many car companies exporting to the Middle East market are facing severe tests-forced to adjust production and export plans. At the same time, costs such as supply chain and transportation have risen, putting pressure on the automobile industry chain such as complete vehicles and parts.

"The stronger the wind and waves, the more expensive the big fish"

"Currently, shipping has been suspended and the original plan has been disrupted. Judging from the current situation, the shipping schedule is already chaotic, and we have to wait for the situation to get better before we can deliver goods." Trader Liu Zhao told the First Financial Reporter.

In February this year, Liu Zhao reached a cooperation with customers in the Middle East and won an order for 100 cars. According to the contract, the customer has paid a 20% deposit in mid-February, and plans to wait for the customer to pay the final payment and determine the shipping date after the Spring Festival. "After the outbreak of the conflict, operations at some key ports in the Middle East were suspended. It is still waiting and seeing. Although there is news of navigation in the Strait of Hormuz, freight rates have risen sharply, coupled with the unstable situation, and even if it is navigable, we dare not ship goods."

Liu Zhao said that there was still a batch of unfinished orders for parts. Fortunately, they had not been shipped before the Spring Festival, otherwise they would have encountered big trouble. He also told reporters that due to the disruption of the plan, he had applied to the domestic main engine factory to suspend production scheduling for orders for which the deposit had been paid. Once the situation improved, he would immediately arrange production and deliver it to customers as soon as possible.

The Middle East is a popular area for China's automobile exports and a gold mine for many traders. Data from the Passenger Federation Branch shows that in the past five years, the number of China's automobile exports to the Middle East market has grown rapidly. From 2021 to 2025, the export volume will be 226,000, 498,000, 668,000, 993,000 and 1.4 million respectively.

At present, many leading car companies such as Great Wall, Chery, and Geely are deploying in the Middle East market. Some car companies have established complete sales channels and after-sales service networks locally, and at the same time promote localized production and research and development to further enhance brand competitiveness.

Cui Dongshu, secretary-general of the Passenger Federation Branch, believes that the obstruction of the Strait of Hormuz has brought soaring freight and insurance costs and prolonged delivery cycles, which mainly affects the pace of short-term direct vehicle transportation. However, China car companies have responded quickly: turning to alternative ports such as Oman and Jordan; increasing China-Europe freight trains + land transport multimodal transport; and accelerating the commissioning of KD factories in Saudi Arabia, Egypt and other places. Coupled with the Middle East's rigid demand for new energy and commercial vehicles, the overall export resilience is stronger than expected. If the Strait blockade lasts for more than three months and the Red Sea route continues to be interrupted, resulting in large-scale delivery delays and order cancellations in the core markets of the Middle East (United Arab Emirates, Saudi Arabia), the Passenger Union Branch may lower its Middle East export forecast after quarterly data tracking. Considering that the armed conflict between Israel and surrounding areas was also severe last year, it did not significantly affect China's car exports to Israel. At present, observation and dynamic evaluation are still the main focus, and no annual total adjustment will be made for the time being.

Cui Dongshu said that the short-term Middle East crisis has little impact on China's automobile exports, and "the more storms the fish become, the more expensive the fish are." In the short term, the obstruction of logistics in the Strait of Hormuz and the sharp increase in freight and insurance costs will significantly reduce the export profits of China car companies, but it is still not enough to offset the core cost advantages of China's complete vehicle supply chain in terms of scale, supporting facilities and efficiency, and will only eat up part of the profit margin. In particular, China has a huge export scale and high export flexibility. Coupled with the huge fleet size of mainstream automobile companies, the cost advantage is more obvious. In the medium term, rising costs will accelerate the differentiation of sea-going models: low-profit models will have the greatest export pressure, and high-value new energy models will be more resilient; car companies will switch to KD spare parts export + localized assembly faster, shifting from "complete vehicle direct transportation" to "Regional manufacturing", increase the construction of overseas logistics transfer platforms, and avoid logistics risks across the Strait from the root cause. In the long run, continued high logistics costs will not weaken the advantages of China car companies, but will force the supply chain to be more stable. Multiple routes, regional stocking, and local factories will be promoted simultaneously, ultimately making the layout of China car companies in the Middle East more risk resistant, closer to the market, and further strengthening their overall competitiveness.

Many car companies postpone export plans

In addition to China car companies, multinational car companies are also generally suffering from the impact of the Middle East conflict.

A research report released by Bernstein shows that new car sales in the Middle East will reach approximately 3 million vehicles in 2025. The closure of the waterway may have a serious impact on this market. Among them, Toyota occupies a leading position among international car companies in the Middle East, with a market share of 17%, followed by Hyundai Motor with 10%. However, Bernstein said that Japanese car companies are currently affected with limited impact. Long-standing sanctions have long excluded them from the Iranian market. Their sales in the Middle East mainly rely on Saudi Arabia to support them.

Although Iran is not Toyota's home court in the Middle East, Toyota Motor has launched a production reduction plan due to Iran's blockade of the Strait of Hormuz. According to foreign media reports, Toyota Motor will cut production of nearly 40,000 vehicles for the Middle East market in Japan to deal with international logistics concerns triggered by the U.S. and Israeli-led military action against Iran. Toyota's production cuts mainly involve popular models produced in Japan and popular in the Middle East, including SUVs, sedans and commercial vans such as Land Cruiser. According to the original plan, Toyota will reduce production by about 20,000 vehicles produced in Japan for the Middle East market by the end of March, and is expected to be implemented around March 9. Toyota plans to cut production by another 18,000 units in April and has notified parts suppliers of its adjusted production plans for March and April.

In addition to Toyota, a group of Indian carmakers have delayed shipments to the Middle East and North Africa region as tensions escalate, shipping routes are blocked and freight costs soar. On March 5, it was reported that car companies including Tata Motors, Maruti Suzuki, Hyundai Motor India subsidiary, and Volkswagen India subsidiary had postponed the shipment of passenger cars and commercial vehicles. The move is to avoid emergency shipping surcharges of up to $2000 per container and increases in war risk premiums, while container capacity has also become tight. People familiar with the matter said that these Indian car companies can usually remain without shipping overseas orders for two to three weeks, after which inventory restrictions and working capital pressures will begin to appear. The Middle East and North Africa are key export markets for Indian car companies. If shipments stagnate for a long time, their sales will also be hit hard.

Stellantis Group has been hit more severely. Bernstein reported that the group's strong performance in the Middle East and African markets in 2025 helped it offset most of its losses globally. Stellantis Group achieved revenue of 9.71 billion euros from the Middle East and Africa region that year, adjusted operating profit of 1.36 billion euros, and a profit margin of 14%, making it one of the few profitable markets for the group.

Regarding the impact of this conflict on China's automobile industry, Wu Songquan, senior chief expert of China Automotive Technology Research Center, wrote that the conflict caused Iran to close the Strait of Hormuz, greatly pushing up the production costs of automobile companies through both energy and logistics channels. In terms of energy, the Strait is responsible for the outward transportation of 20% of the world's crude oil and 22% of liquefied natural gas. The closure triggered a sharp rise in oil prices, which directly pushed up the cost of energy and petrochemical raw materials; in terms of logistics, shipping giants collectively suspended shipping, trapped container ships, and the opening of new routes led to the lengthening of cycles and soaring freight and insurance premiums.

On the other hand, soaring energy costs and logistics obstacles will be transmitted to the entire automobile supply chain within weeks. Petrochemical raw materials and synthetic rubber are rising rapidly with oil prices; and my country relies on Iran for 60%-70% of its imported celestite. Its supply cuts and price increases will affect the production of core components for new energy vehicles. The disruption in the supply of neon gas from Iran and bromine from Israel has further exacerbated the supply risks of vehicle gauge chips and power battery materials, forming a chain reaction. Relevant basic raw materials and key components may be affected by the depth of inventory and the surge in temporary military demand, resulting in structural shortages.

The knock-on impact of the conflict goes far beyond direct sales. European truck orders, which have performed strongly in recent months, may slow down due to rising diesel prices-fuel costs account for 20% to 30% of trucks 'total cost of ownership (TCO), and higher oil prices will weaken operators' profitability. Tire makers Michelin and Bridgestone had previously expected positive raw material costs in early 2026, but Bernstein warned that if oil prices remain high, considering the lag effect of 3 to 6 months between crude oil prices and corporate costs, these positive results may be completely reversed.

Source: First Financial Information

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