Automotive Supply Chain Risk Digest #343

August 1 - 7, 2023 by Elm Analytics

👋 Hi there!

I just wanted to thank you for your continued support of the Automotive Supply Chain Risk Digest. Your dedication fuels our commitment to delivering vital industry insights.

This week, I'm excited to direct your attention to a must-read article on LinkedIn titled:

Are Any of Your Suppliers at Risk in the Event of a UAW Strike?
5 questions you can ask to find out.

Our CCO, Sig Huber, has penned this insightful piece, offering valuable perspectives on a topic of paramount importance in our industry. With the potential impact of a UAW strike looming, Sig's expertise will help you navigate the complexities and make informed decisions to safeguard your supply chain.

We're privileged to have thought leaders like Sig on our team, providing actionable insights for your benefit. We hope you have time to dive into this article and explore other engaging updates in this week's edition.

Warm regards,

Nick Gaydos

Editor, The Automotive Supply Chain Risk Digest 📬 🚗

Change In Management

James Kuffner, the current CEO of Toyota's AV software subsidiary, Woven, will step down from his role on October 1, 2023. He will be replaced by Hajime Kumabe, the CEO of J-QuAD Dynamics, a JV between several Toyota Group suppliers specializing in automated driving.

Woven aims to make software-driven cars at a faster pace and less cost. Toyota is preparing to launch its Arene operating system in 2025, aiming to introduce software-defined / programmable digital vehicles. Automotive News writes, "Executives at Toyota are banking on Arene as the big breakthrough."

Industry Directions

Western automakers risk losing a fifth of their global market share due to the increasing popularity and affordability of Chinese EVs, as indicated by a report from UBS Group analysts.

Chinese automakers, spearheaded by BYD, are projected to almost double their global auto market share to 33% by 2030. Chinese brands like Nio and Xpeng have expanded their visibility at international events like Munich's IAA Mobility auto show.

The UBS report highlights that Western automakers' global market share could decline from 81% to 58% by 2030. BYD, which has in-house production of 75% of its components, has a cost advantage over other brands like Tesla and Volkswagen.

Europe's car manufacturers are working hard to produce more affordable EVs and compete with China, which is ahead in developing cost-effective, consumer-friendly models, as highlighted at Munich's IAA mobility show. Renault's CEO mentioned that their upcoming R5 EV will be 25%-30% cheaper than their existing EV models.

Prominent Chinese EV brands such as BYD, Nio, and Xpeng are targeting the European EV market, with sales in Europe rising significantly. As a result, the presence and influence of these Chinese brands may change the competitive landscape and force European manufacturers to innovate and adapt more quickly.

Unlike the automakers, major German auto suppliers are showing enthusiasm for Chinese EV makers' expansion into Europe, viewing it as an opportunity to enhance existing partnerships and offer European-made parts to these manufacturers.

Bosch CEO Stefan Hartung remarked that Chinese producers would gradually adapt their vehicles to the European market, which he sees as beneficial for competition and consumers. Bosch is already partnered with several Chinese EV brands.

German suppliers, such as ZF Friedrichshafen and Continental, are keen to capitalize on this potential shift, highlighting their readiness to support Chinese manufacturers' European ventures.

BMW aims to reduce new factory construction time by 30-40%. A "digital twin" approach allows for enhanced planning and testing before real-world implementation, considerably reducing the planning and construction time. With this technology, BMW seeks to virtually plan and validate its assembly plant in Debrecen, Hungary, that will produce EVs in 2025.

According to a survey by Capgemini, automakers and suppliers are sidelining sustainability efforts in their sourcing policies to prioritize reducing exposure to geopolitical risks after supply chain disruptions.

The survey indicated a decline in sustainability initiatives such as carbon footprint tracking and route optimization to decrease emissions. Sustainability investments dropped to $30.5M in 2023 from $36.6M in 2022, with one-third of the surveyed companies needing a comprehensive sustainability strategy.

Labor

As the September 14 contract deadline looms, the UAW has accused two of the Detroit 3, General Motors and Stellantis, of not negotiating fairly, while the third, Ford, has been criticized for offering insufficient raises and benefits. UAW President Shawn Fain has been particularly vocal about his dissatisfaction with the negotiations.

The escalation in negotiations between UAW and the Detroit 3 underscores labor tensions in the auto industry, with the potential for significant economic repercussions and disruptions to the automotive supply chain.

The United Auto Workers union, for the first time in its 88-year history, is contemplating a simultaneous national strike against the three major Detroit automakers. UAW President Shawn Fain has not chosen a traditional target company nor ruled out a mass walkout of nearly 150k workers. Such an action could rapidly drain the UAW's $825M strike fund.

One potential strategy is a bottleneck strike that targets crucial production sites, forcing other plants to shut down. Jeff Schuster from GlobalData suggests that a bottleneck strike might significantly affect profitable vehicles.

J.P. Morgan warns that a possible UAW strike could cause a ripple effect of disruptions in the auto industry and beyond. This could impact vehicle production, used car pricing, and, subsequently, the auto insurance sector - a significant challenge for major corporations and insurers.

GM presented a counteroffer to the UAW, proposing a 10% wage increase and two 3% yearly lump sum payments over four years. This is after Ford's proposed 9% wage rise until 2027, much lower than the UAW's demand for a 46% increase.

The UAW President called GM's proposal "insulting" and argued that it would reduce profit-sharing by 29%. GM also suggested a $6k inflation-related payment, a $5.5k ratification bonus, and $5k inflation-protection bonuses.

Mergers, Ventures, Acquisitions

Germany's Continental is evaluating if it remains the best-suited owner for its ContiTech unit, as stated by CEO Nikolai Setzer in an interview with Germany's Welt Am Sonntag newspaper.

ContiTech, a subsidiary of Continental, produces products, systems, and intelligent components made from rubber, plastic, metal, and fabric for various industries.

Continental indicated in August that it might sell the automotive division within ContiTech as part of a broader organizational reshuffling announced in February.

ABC Technologies, a Toronto-based Canadian plastic components supplier, will be taken private by Apollo Global Management and Oaktree Capital Management, which already own 93% of the company. These firms plan to purchase the remaining public shares, valuing the company at roughly $780M.

This move comes after a series of changes in the company as it adjusts its global presence under new management. The decision to go private has been under consideration since April, and the existing executive team will stay post-transition.

Opening

Volta Energy Solutions plans to have its $750M copper foil facility at full production by 2026. The Granby, Quebec facility will begin with an initial annual output of 25k tons, increasing to 63k tons during its second phase. This capacity is expected to provide copper foils for batteries in up to 2.5M EVs in North America.

CATL recently disclosed plans to produce its new ShenXing battery technology in Europe. While CATL is expanding its production to Germany and Hungary, there's a mystery surrounding which European automakers will incorporate these batteries into their EV lineups. The ShenXing batteries, with lithium-iron-phosphate (LFP) cells, can provide up to 700km of range and can recharge 400km of range in just 10 minutes.

CATL's batteries might offer an advantage over the nickel-manganese-cobalt cells currently used by BMW and Tesla due to their competitive energy density and lower cost. While Tesla has been linked with CATL for potential collaborations in the past, specific details about which automakers will first adopt the ShenXing batteries remain undisclosed.

Production Decrease

Ford has delayed production of its eSUV Explorer in Cologne by six months to incorporate Volkswagen's new battery tech. This affects Ford's European workforce (layoffs were announced last February), and discussions are ongoing. Ford aims to introduce seven new models by 2024, with two produced in Cologne and one in Romania. The company plans to ramp up to sales of 600k EVs by 2026.

Production Increase

Magna predicts its revenue from EV battery enclosures will reach $2.5B by 2027, marking a substantial increase from the $100M in 2022. The company has invested $700M in its Michigan and Ontario plants for battery enclosure production, targeting the Chevrolet Silverado EV and the Ford F-150 Lightning electric pickup.

Recalls

NHTSA is looking to recall 52M air bag inflators with the potential to rupture and send shrapnel flying, causing injuries or death. ARC Automotive and Delphi Automotive Systems produced the inflators until January 2018.

NHTSA initiated a recall request in April 2023, but ARC Automotive contended that there wasn't enough evidence of a safety defect. Delphi Automotive Systems, now owned by Autoliv, might not be held accountable for inflators manufactured before the acquisition.

The agency believes that the cause of ruptures might be due to weld slag, which, when dislodged, can obstruct the inflator's exit during an airbag's deployment, leading to ruptures.

Regulation

Germany is backing the UK's calls for a three-year delay to postpone tariffs on EV sales between the UK and the EU.

Shutdown

Last week, Toyota Motor experienced a malfunction that halted all its assembly plants in Japan for approximately one day. The issue was due to servers used for processing parts orders becoming unavailable following maintenance procedures.

This system disruption was attributed to insufficient disk space on specific servers rather than a cyberattack. Toyota stated that operations resumed once data was transferred to a larger-capacity server. This glitch arose after regular maintenance, prompting Toyota to consider reviewing its maintenance protocols.