Automotive Supply Chain Risk Digest #340

August 11 - 17, 2023 by Elm Analytics

Change In Management

Ford has hired former Apple executive Peter Stern to head its Ford Integrated Services unit. As cars become more software-driven and connected, automakers like Ford are looking to generate revenue beyond the initial purchase through software-based services. Stern's responsibilities will include overseeing projects such as upgrades to Ford's BlueCruise semi-autonomous driving system.

Cyber Security

As automobiles rely more on software, a debate is emerging over whether automakers should be subject to cybersecurity regulations similar to those in Europe. The Biden administration's national cybersecurity strategy encourages capable organizations to take on responsibility, which makes cybersecurity largely voluntary in the US. The Alliance for Automotive Innovation, representing automakers and suppliers, says vehicles are integrating into a broader ecosystem beyond automakers' control, making shared cybersecurity responsibilities necessary. While voluntary standards govern US automotive cybersecurity, some experts advocate for mandatory regulations to ensure better protection against cyber threats.

Expanding

Magna Lighting is investing over $20M to expand its Corregidora, Querétaro plant in Mexico.

Japan's Rohm Semiconductor is acquiring a plant from Solar Frontier in Kunitomi, Japan, to expand its silicon carbide power components production.

Industry Directions

The Verge: Robotaxis are driving on thin ice

"The day after California regulators handed driverless car companies a major victory, allowing them to expand their services without restriction in San Francisco, a herd of robotaxis decided to celebrate by breaking down in the middle of a busy street."

Alison Jones, who leads Stellantis' circular economy business unit, has announced its plans to broaden its supplier base for sustainable components to achieve its sustainability objectives. The automaker intends to partner with suppliers to enhance its circular economy projects, which involve extending the lifespan of parts and materials by reintroducing them into manufacturing. Stellantis aims to generate over $2B in revenue from circular economy business by 2030 while attaining carbon net-zero status by 2038. The strategy centers on the "4R's": remanufacturing, repair, reuse, and recycling. Stellantis plans to involve suppliers in product development early on to promote innovation and sustainability.

Labor

The UAW has asked its 140k members at General Motors, Ford, and Stellantis to cast their votes for a potential strike. UAW President Shawn Fain criticized the automakers and media for their response to the union's demands, which include higher pay, restructured pensions, and a shorter workweek. Fain highlighted the disparity between rising vehicle prices and labor costs and accused companies of prioritizing dividends and executive compensation over workers' needs. The negotiations, scheduled to end on September 14, have become intense due to Fain's assertive approach, and the auto industry's stocks have been affected.

According to an analysis by Anderson Economic Group, a 10-day UAW strike against the Detroit 3 could lead to over $5B in economic losses, including wage and manufacturer losses. The situation could impact Michigan's economy and increases the possibility of a recession. The strike seems increasingly likely as negotiations between the UAW and automakers show little progress.

Litigation

Lordstown Motors, which filed for bankruptcy in June, has settled a 2020 lawsuit with Karma Automotive for $40M. Karma had accused Lordstown of stealing technology and poaching employees. The settlement includes a $5M royalty payment for Karma's intellectual property use. Approval from the US Bankruptcy Court is pending.

Mergers, Ventures, Acquisitions

A bidding war for US Steel could impact the auto industry significantly, especially if Cleveland-Cliffs, a major supplier of automotive steel, emerges as the victor. Cleveland-Cliffs' bid for US Steel has raised concerns among auto executives, as it could give the company control over more than 50% of the auto steel market, reducing automakers' bargaining power for steel prices. However, other steelmakers like Esmark and ArcelorMittal are also considering bids. The potential acquisition could face antitrust scrutiny due to business overlap. While union support for Cleveland-Cliffs' proposal is strong, consolidation in steel production will continue regardless of the outcome, impacting the auto industry's steel supply chain.

Ford and SK are teaming up to construct a $1.2B battery cathode factory in Quebec's "Battery Valley," Becancour. This move aligns with Ford's extensive EV plans, requiring a significant increase in battery supply. The partnership includes cathode specialist EcoProBM, with production set to commence in H1 2026, targeting up to 45k tonnes of cathode material annually. The factory will produce Nickel Cobalt Manganese cathodes, contributing to improved EV performance. This initiative addresses North America's limited cathode material production and aids Ford's eligibility for federal EV tax credits.

Stellantis is investing over $100M in a California geothermal lithium project to create an eco-friendly supply chain for its EVs. Controlled Thermal Resources will supply Stellantis with lithium hydroxide monohydrate starting in 2027. The project aims to produce up to 300k metric tons of lithium carbonate equivalent annually using renewable energy and steam. More importantly, this investment will make Stellantis' EVs eligible for federal consumer incentives.

Hyundai Motor India has signed an agreement to acquire assets from General Motors India's Talegaon Plant in Maharashtra. The acquisition includes land, buildings, machinery, and manufacturing equipment. The expansion aims to boost the company's production capacity and support the launch of more EV models.

The electric vertical takeoff and landing developer, Archer Aviation, has recently received FAA airworthiness certification and a $215M investment from Stellantis, with contributions from Boeing, United, and ARK Invest. Boeing's involvement came after a legal settlement. This latest investment brings Archer's funding to over $1.1B. Their eVTOL prototype "Midnight" has now been certified, which means flight tests can begin shortly. Piloted tests with FAA participation are scheduled for early 2024.

According to Senior Minister Luhut Pandjaitan, Tesla is planning to invest in manufacturing battery materials using Indonesia's nickel reserves. During a meeting, Elon Musk discussed the investment plan with the minister, with a focus on producing lithium battery materials. Although Tesla won't be constructing a car factory in Indonesia, the investment is expected to be significant. Musk is set to reveal more details about the plan during his visit in September or October.

Opening

Machinery has been spotted at the site of Tesla's Gigafactory in Mexico, indicating that construction might finally be underway. After announcing the factory in March, Tesla has been waiting for permits to start building. The Gigafactory Mexico is a key part of Tesla's plan to ramp up production to 20 million vehicles by the end of the decade, with the goal of manufacturing its next-generation vehicles, including a cheaper electric hatchback and a robotaxi vehicle, at the new facility.

South Korea's Lotte Energy Materials is building a copper foil factory in Spain near Tarragona to supply battery cells for EVs. It's expected to produce 30k tonnes of copper foil by 2025, with the potential for expansion to 100k tonnes. Lotte aims to secure a 30% share of the copper foil market by 2028, and the Spanish factory will play a significant role in this goal, supported by the Spanish government's funding program.

Vishay has opened a new resistor manufacturing plant in Ciudad Juárez, Mexico.

China's Sunwoda will build a $264M factory in Nyiregyhaza, Hungary, to supply lithium-ion batteries to European EV makers. Construction begins soon, with production starting in late 2025. Other Chinese battery makers, such as EVE Energy and CATL, are also setting up shop in Hungary to meet demand.

Regulation

New York Governor Kathy Hochul has introduced a $12M initiative to promote the adoption of EVs and their integration into the electric grid. The program targets the development of EV charging infrastructure, reducing grid integration costs, affordability of EV ownership, and research supporting bidirectional charging, energy storage, and on-site energy generation.

Supply Chain

The recent bankruptcy of trucking company Yellow Corp. highlights ongoing concerns about the fragility of the automotive supply chain.

"I think the Yellow bankruptcy is going to have more of an impact than we think, and I don't believe we've fully seen it yet"
- Laurie Harbour, CEO of Harbour Results Inc

The automotive industry has already faced various supply chain challenges, with transportation issues being a significant concern due to higher costs and logistics uncertainties. While issues like the microchip shortage have eased, transportation challenges remain. The bankruptcy underscores the need for suppliers to examine their supply chains and consider factors like logistics when making strategic decisions. Regionalizing supply chains and sourcing more components locally could mitigate these challenges in the future.