By Victoria Waldersee and Miranda Murray

BERLIN (Reuters) -A lack of wiring harnesses from Ukraine has overtaken a shortage of semiconductors as Volkswagen’s biggest supply chain headache as the Russia-Ukraine war clouds its prospects for this year, the world’s No.2 carmaker warned on Tuesday.

Rising raw material costs will drive up prices for both electric and internal combustion engine vehicles, Chief Financial Officer Arno Antlitz said, with everything from batteries to catalytic converters set to become more expensive.

In light of rising instability in Europe, boosting sales in China – where Volkswagen currently has 16% market share and aims to double battery-electric car sales this year – is an even higher priority than before, CEO Herbert Diess added.

“The war in the Ukraine has put our existing outlook into question,” Diess said at the German group’s annual press conference following Friday’s 2021 results, warning commodity markets are likely to remain volatile until 2026.

Rival Tesla on Tuesday raised prices in China and the United States for the second time in days after its CEO noted surging raw materials and logistics costs.

Diess said Volkswagen had become more resilient through the coronavirus pandemic and under normal circumstances would have reason for optimism for 2022.

The group cut overhead costs ahead of schedule last year, leading to 4 billion euros ($4.4 billion) of benefits compared with 2019, said Antlitz.

The potential initial public offering (IPO) of sports car brand Porsche will provide additional flexibility, he said, adding an IPO could still happen as soon as the fourth quarter of 2022, despite current market uncertainties.

However, a halt in supplies of wire harnesses, which bundle up to 5 km (3.1 miles) of cables in a car and are unique to each model, could force Volkswagen to revise its outlook if alternative sources are not found in 3-4 weeks, Diess said.

The carmaker is relocating production from Ukraine to North Africa and Eastern Europe – a process which is not complicated but time-consuming, the CEO said.

Volkswagen sold two million fewer cars than planned last year due to semiconductor shortages and said that, while the situation should improve this year, there could still be a drag on growth.

The carmaker said on Friday its operating profit doubled in 2021 to just under 20 billion euros thanks to higher prices and a favourable product mix, despite total unit deliveries hitting a 10-year low of 8.9 million.

Looking forward, it expects to increase deliveries by 5-10% in 2022 and boost revenues by 8-13%, it said on Friday.

Both Volkswagen and Japan’s Toyota suspended production temporarily at some plants in China amid COVID-related lockdowns, with Toyota warning on Tuesday the suspensions could last several more weeks.

($1 = 0.9081 euros)

(Reporting by Victoria WalderseeEditing by Louise Heavens and Mark Potter)

---