Automotive Supply Chain Risk Digest #333

June 23 - 29, 2023 by Elm Analytics

Jun 30, 2023

Bankruptcy

Lordstown has filed for bankruptcy after a dispute with Taiwan's Foxconn over a promised investment. Lordstown accused Foxconn of fraudulent conduct and broken promises, while Foxconn claimed that Lordstown breached the investment agreement. The bankruptcy filing comes as a blow to the EV startup industry, signaling the dominance of established automakers like Tesla. Lordstown's main product is the Endurance electric pickup truck, and its bankruptcy could draw interest from overseas automakers looking to enter the US EV market.

Corporate defaults have risen, with 41 in the US this year, more than double last year. Uncertain economic conditions and heavy debt loads have contributed to companies defaulting on their debt, as high interest rates make it challenging to refinance. The number of bankruptcy filings in the US has also increased significantly. The Federal Reserve's plan to continue hiking interest rates to combat inflation suggests that corporate default rates may rise further in the coming months.

Change In Management

Audi has announced that Gernot Doellner, VW's strategy chief, will replace Markus Duesmann as CEO of Audi on September 1. Duesmann's future had been uncertain due to various setbacks and slow progress on innovation, causing Audi to fall behind competitors BMW and Mercedes-Benz.

Meanwhile, the drama at Nissan continues (from Reuters):

Expanding

Hyundai is considering the construction of a second North American EV assembly plant, with Canada being a potential location. While Hyundai's first North American EV facility is still under construction in Georgia, the automaker is already looking ahead to meet future demand.

LG Chem began producing high nickel single crystal cathodes at its Cheongju, South Korea plant. The company will expand production from 20k to 50k tons / year by bringing its Gumi plant up to speed by 2027.

Eaton's eMobility division has received a $600k grant from the Michigan Economic Development Corporation to expand its facilities in Marshall, Southfield, and Canton, Michigan, focusing on research, development, and EV testing.

Industry Directions

Tesla's NACS plug is becoming the standard for EV charging, as automakers like Stellantis, Volvo, and Polestar now plan to switch to it. The Tesla Supercharger network's wide coverage and reliability make NACS more appealing. This shift will ease "charger anxiety" and drive EV adoption. SAE International is also developing standards to ensure compatibility with NACS across different EV models.

Labor

Stellantis will require union employees to work mandatory overtime at its Warren Truck and Jefferson North factories in Michigan to increase production of Jeep SUVs. The plants will be in "critical status" from July 5 to October 2. Under the current UAW contract, a plant in critical status can run up to 7 days a week for 90 days, requiring union employees to work more than 9 hours of overtime. The decision has sparked criticism from the UAW, who believe it is an attempt to build up inventory ahead of a potential strike. Stellantis attributes the increased production to high demand for its popular models. Contract negotiations between the UAW and Detroit automakers, including Stellantis, are set to begin in July.

Litigation

A group opposing the construction of Ford's $3.5B EV battery plant in Marshall, Michigan, has filed a lawsuit against the city. The city had rejected the group's petition for a referendum vote, claiming insufficient valid signatures. The opposition group disagrees with the city's reasoning and seeks to present its evidence in court.

Mergers, Ventures, Acquisitions

Aston Martin is partnering with Lucid Group to utilize its powertrain and battery technologies for their upcoming electric vehicles (EVs). This partnership will enable Aston Martin to develop its own EV platform for various vehicle models. Aston Martin will gain access to Lucid's advanced EV technology, including motors, batteries, and charging systems.

Element 25 and GM have agreed to a deal where GM will provide an $85M loan to help finance the construction of a Louisiana facility that will supply manganese sulfate for GM’s EV battery cathodes.

GM Energy recently announced its Ultium Home line, which will integrate EV charging with home backup power utilizing its Ultium battery cells and connected services.

Opening

BMW broke ground on its new battery assembly plant in Woodruff, South Carolina, to make sixth-gen batteries for their EVs at the Spartanburg facility. The cells will be sourced from AESC's new factory in nearby Florence.

Production Increase

Tesla is doing well in China, the world's largest electric vehicle market. Sales are high, despite competition from local manufacturers. Experts predict a 13% increase in deliveries this quarter. However, expanding into smaller cities is challenging due to the established dealership networks of competitors like BYD.

Raw Material Disruption

Lithium producers are struggling to keep up with the growing demand for EV batteries due to mining permit delays, staff shortages, and global inflation. This could lead to a potential crisis as battery companies face a shortage of lithium feedstock. The industry also faces supply and logistical challenges, with projections showing that existing lithium mines may not be enough to meet demand. There is a risk of lower-quality lithium being used, impacting battery performance. Social and environmental barriers, such as water scarcity in lithium extraction regions, further complicate the situation.

Regulation

The Biden administration plans to invest $2B from the Inflation Reduction Act to accelerate domestic manufacturing of EVs and support struggling plants. The Domestic Manufacturing Conversion Grants for EVs program will provide cost-shared grants, focusing on refurbishing or retooling manufacturing plants that have recently ceased operations or are expected to close. The grants, ranging from $25M to $500M, will be available until September 2031. The notice of intent issued by the Energy Department is a preliminary step, and further funding announcements may follow.

The Alliance for Automotive Innovation opposes the EPA's proposed vehicle emissions rules, calling them too strict and effectively requiring EVs. They argue the rules are unachievable in the time frame, increase costs, and limit choice. The alliance advocates for a balanced approach that maintains progress in the EV market.

Risk Analytics

According to industry executives and experts, labor costs and availability pose challenges for automotive suppliers seeking to nearshore production in North America. While commodity and energy prices have stabilized, elevated labor costs and worker shortages continue to impact manufacturers. As companies shift their supply chains out of Asia and expand manufacturing in Mexico, the competition for plant workers is increasing, driving up labor costs. The average monthly salary for manufacturing workers in Mexico has risen by 30% in the past five years, while the average hourly wage of a US manufacturing worker has increased by over 20%. This labor pinch impacts manufacturers heavily reliant on low-cost labor, such as seating and electronics suppliers. The increasing labor costs are not expected to decrease, which presents challenges for suppliers and can impact their ability to sustain their businesses.

Automotive Supply Chain Risk Digest