Automotive Supply Chain Risk Digest #341
Automotive Supply Chain Risk Digest #341
August 18 - 24, 2023 by Elm Analytic
Bankruptcy
Util Group's North American production operations abruptly closed on August 4 and subsequently filed for bankruptcy in Canada and possibly Mexico. The impact on Util's customers, including companies like Nisshinbo and Akebono that used Util's fine blanks in their brakes, remains uncertain.
Disaster
Toyota temporarily halted production at its Kolin factory in the Czech Republic due to a parts shortage caused by a fire at a local supplier. The factory produces the Aygo X mini crossover and the Yaris small hatchback. The production stoppage is from August 22 to 27, the second production stoppage this year. The plastics supplier Novares CZ Zebrak, whose production and storage facilities were destroyed by a fire, is suspected to be the affected supplier.
Production resumed at Ultium Cells' battery plant in Lordstown, Ohio, after a chemical leak halted cathode mixing operations temporarily. Ultium, a General Motors and LG JV, quickly contained the leak without employee exposure or injuries. OSHA is investigating potential hazards and safety violations, as Ultium had been fined for previous violations.
Human Capital
GM has surprised many with a WARN filing announcing the closure of its Arizona Information Technology Innovation Center, resulting in the layoff of 936 workers. This decision arrived just 18 months after it announced plans to expand the facility and hire hundreds more employees. The center opened in 2014 and is one of four comparable facilities throughout the United States, with others in Warren, Michigan; Roswell, Georgia; and Austin, Texas. Employees working on software-defined vehicle teams will remain. The Chandler Center specializes in various areas, such as web technologies, end-user applications, dealership and factory systems, and vehicle technology.
General Motors will also eliminate about 200 engineering positions as it pursues its "Winning with Simplicity" strategy to reduce complexity and cut design and engineering costs. This effort is part of GM's broader plan to achieve $3B in cost reductions over the next two years. Earlier this year, 5k salaried employees opted for voluntary buyouts, contributing to its cost-saving measures.
Industry Directions
Previously facing financial challenges, automotive tool-and-die companies are expected to see an upswing as automakers prepare to launch a record 130 new electric or hybrid models. A study by Harbour Results and AutoForecast Solutions indicates that automakers will increase spending on tooling in North America, with projected base tool spending reaching $7.1B in 2025. The study highlights the increasing role of tool-and-die companies as the auto industry electrifies, presenting both challenges and opportunities for these suppliers in the evolving landscape of electric vehicle manufacturing.
Labor
Recent contract negotiations between unions like the UAW, John Deere, Caterpillar, and Case New Holland provide insight into potential talks between the UAW and Detroit 3 automakers. The UAW is expected to use similar tactics, such as strikes and public pressure, during negotiations with Ford, GM, and Stellantis. Recent deals achieved double-digit wage gains, pension additions, and cost-of-living adjustments. These successes influence UAW members' expectations for their upcoming contracts. For instance, the John Deere agreement brought 20% wage increases, while the Case New Holland strike secured 28% wage gains.
The pandemic-related shutdowns and semiconductor shortages have left many smaller suppliers financially vulnerable. If assembly lines halt due to the looming UAW strike, many of these suppliers might run out of cash or struggle to restart production, leading to a ripple effect throughout the supply chain.
Hyundai Motor's unionized workers in South Korea have voted for possible strike action as negotiations over wage increases and an extension of the retirement age have stalled. The union, one of the largest in the country with around 44k, reported that 88.9% of its members have approved strike action unless the company agrees to their demands. The strike would be the first action in five years related to wage negotiations at the South Korean carmaker.
Mergers, Ventures, Acquisitions
Illinois is close to attracting a major EV battery manufacturer as the Kankakee County Board approved a property tax abatement for a site in Manteno. While the company's identity remains undisclosed, sources hint at Gotion, a Chinese firm also planning a Michigan factory. The potential Manteno facility could generate 2.6k jobs and $2B in investment, aligning with Gotion's Michigan battery parts plant.
To secure strategically important microchips, Volkswagen has initiated direct purchasing agreements with ten chipmakers, including NXP Semiconductors, Infineon Technologies, and Renesas Electronics. Previously, the company relied on Tier 1 suppliers to handle chip purchases. This move, started last October, aims to secure chip supply amid growing demand due to electric vehicles and autonomous driving features. Volkswagen also plans to streamline its software and supply chain by reducing chip variety in its vehicles.
Opening
China's Innovation New Material Technology, an aluminum alloy producer, will invest $197M to build a plant in Mexico. This follows their recent announcement of a $194M plant in Vietnam for electronics. The Mexico project is in its early stages and will produce aluminum alloy parts such as wheel hubs and battery trays for BMW, Mercedes-Benz, Volkswagen, and Nissan.
Production Decrease
A supplier tooling theft has reportedly delayed Nissan's production plans for its next-gen Kicks crossover. Production is pushed back from December, with the entry-priced subcompact crossover's launch now scheduled for June. This setback follows a delay caused by the vehicle's failure to pass crash safety tests. While the supplier's identity and the specific affected part have not been disclosed, the theft of manufacturing equipment can significantly impact production timelines.
Tesla's production of its Model Y at its Giga Berlin facility has reportedly dropped from its goal of 5k units/week to 4k.
Production Increase
GM aims to accelerate EV production by introducing several new EV models by mid-2024, to produce 1M EVs annually starting in 2025. The company's second Ultium Cells battery plant in Tennessee, in partnership with LG Energy Solution, is set to open soon, bolstering battery capacity. Although initial production of GM's Ultium-based EVs like the Cadillac Lyriq and GMC Hummer EV had faced slower starts, output has been picking up recently. Challenges include adapting new high-volume EV battery production processes and managing factors beyond the company's control, like the battery supply chain.
Raw Materials
The surge in electrification, especially in electric vehicles (EVs), has caused a significant copper shortage, vital for EV batteries and electronics. While copper demand is predicted to rise 53% by 2040, supply will only increase by 16%. This deficit affects EV manufacturers requiring 2.5x more copper than ICE vehicles. Escalating copper costs and battery production constraints could lead to higher prices or reduced profits. Addressing this requires mining innovation, efficient recycling, alternative battery technologies, and international collaboration for sustainable copper use.
Regulation
Here's a breakdown of the investment numbers (88%, Top 10 States) one year into the Inflation Reduction Act (IRA):
Georgia - $31.5B (33.6k jobs)
Michigan - $18.9B (19.7k jobs)
Tennessee - $18.4B (20.5k jobs)
South Carolina - >$10B (18k jobs)
Nevada - >$10B (12.4k jobs)
Kentucky - >$10B (12.9k jobs)
North Carolina - >$10B (11.9k jobs)
Ohio - $9B (5.8k jobs)
Arizona - $9.7B (9.7k jobs)
Indiana - >$9B (6.7k jobs)
India is reportedly considering a new EV policy to reduce import taxes for automakers committing to local manufacturing. The policy could allow automakers to import fully-built EVs at a reduced tax rate of as low as 15%, compared to the current 100% for cars costing above $40k and 70% for the rest. This activity is seen as a response to a proposal by Tesla, which has expressed interest in entering the Indian market. The lower import taxes could make it more affordable for Tesla to sell its full range of models in India and encourage other global automakers to enter the Indian EV market. However, the Indian government will likely move slowly on this proposal to avoid disrupting the market and affecting local players like Tata and Mahindra, which are already investing in domestic EV production.
Supply Chain
Increasing climate-driven extreme weather events are impacting major shipping routes, and the upcoming El Niño could worsen the situation. El Niño, a naturally occurring climate pattern, leads to the warming of tropical central and eastern Pacific Ocean waters, causing global weather impacts. The lower water levels brought on by drought in Panama have reduced vessel passage through the Panama Canal, creating a shipping logjam.
"What we see right now is perhaps only the starter of the main course that is being served next year because it could be [a] more severe drought when we get to the first half of 2024... Right now, we do not see that filling up of the water levels that a normal year would bring around. So, it is literally a potential disaster in the making."
-Peter Sands, Chief Analyst at Xeneta
This six-foot drop in water level restriction affects both the amount of cargo carried and the throughput. Climate-induced extreme weather events are becoming more prevalent and expose the fragility of the global shipping supply chain, with potential implications for supply chains and economies.
As much as 25 to 50% of Yellow's freight is expected to shift to smaller carriers outside the top 10 Less-Than-Truckload (LTL) providers following Yellow's bankruptcy, according to Goldman Sachs. This shift began early as shippers redirected freight, benefiting large carriers and smaller regionals. LTL providers like Saia may experience a surge in shipments due to sharing customers with Yellow. Major LTL providers are adapting to the increased volume differently, with some focusing on maintaining service levels for existing customers and avoiding overburdening their capabilities.