Automotive Supply Chain Risk Digest #345

September 15 - 21, 2023 by Elm Analytics

Change In Management

Faraday Future Intelligent Electric has appointed Matthias Aydt as its new global CEO, succeeding Xuefeng Chen, who will now oversee the company's China business and take on the EVP of Global Industrialization role. These leadership changes come amid financial challenges, governance disputes, delivery delays, and potential market manipulations for the Los Angeles-based EV manufacturer.

Closing

Due to the declining ICE business, Marelli will close one of its Italian plants in Crevalcore. The plant employs 230 people, producing plastic and aluminum components for engines. Marelli cited reduced investments in ICE technology, rising raw material and energy prices, and declining volumes and revenues as reasons for the closure. The company plans to move plastic component production to another Italian plant and externalize the production of aluminum components.

Human Capital

GM has laid off 2k workers at its Fairfax Assembly in Kansas after running short of decklids (stampings) from its Wentzville Assembly plant in Missouri, where workers are on strike.

Stellantis said 68 employees at its Toledo Machining Plant in Perrysburg, Ohio, were laid off due to "storage constraints" and are a result of the strike at Stellantis' Toledo Assembly Complex.

LM Manufacturing, a seating supplier in Detroit, has temporarily laid off 650 workers($) due to the UAW strike, which has halted production of the Ford Bronco in nearby Wayne, Michigan. LM Manufacturing is a JV between Magna and minority-owned LAN Manufacturing. The layoffs began in response to the strike, and the company plans to bring employees back once production resumes. The tight labor market and the strike's impact on suppliers' ability to rehire employees concern industry observers.

Two major suppliers, KUKA Toledo Production Operations and Mobis North America, located inside the Toledo Jeep plant, are eligible to receive a weekly strike pay of $500 despite not being on strike themselves. These suppliers' workers signed up for the UAW strike pay and health benefits after they were laid off due to the ongoing strike by approximately 6k Stellantis colleagues at the Toledo Assembly Complex. The UAW decided to offer these benefits, viewing that these contractors work in line with the striking members.

Labor

Ford successfully avoided a second strike in Canada by reaching a tentative labor agreement with Unifor (gift) just before the strike deadline. Although the details of the deal were not disclosed, Unifor confirmed that Ford made a "substantive offer." Unifor will hold a vote among its members on the tentative agreement with Ford of Canada before the end of the week.

The UAW Workers have gone on strike at a ZF Group plant in Tuscaloosa, Alabama, which supplies axles to a nearby Mercedes-Benz factory. Approximately 190 workers are involved in the strike, which centers on wages, a tiered wage structure, and healthcare coverage. The impact on vehicle assembly at the nearby Mercedes-Benz plant remains uncertain. ZF Group is continuing negotiations and hopes for a swift resolution.

NYTimes: For Tesla and Musk, Auto Strike Carries Benefits and Risks (gift)

Mergers, Ventures, Acquisitions

JSW, an Indian steel and energy conglomerate, is reportedly in preliminary discussions with Korea's LG Energy Solution to partner on producing battery cells in India. JSW has also initiated talks with other battery giants, including China's CATL, Japan's Panasonic, and Toshiba, to establish a robust local supply chain for EVs.

Opening

Hota, a Taiwan-based gear manufacturer, will build its first plant outside Asia in Santa Teresa, New Mexico. The $99M plant, expected to be operational by 2024, will be situated near the Mexican border to cater to Tesla's new Mexican plant. Hota's North American sales account for 60% of its total business.

Raw Material Costs

A broader UAW strike could significantly affect steelmakers. US Steel Corp. has already idled a blast furnace($) in Illinois in response to the current walkout. The strikes are predicted to impact copper and aluminum demand, but steelmakers are particularly vulnerable. Historical trends show that previous UAW strikes have led to price drops and a decline in steel-related company stocks. Despite these initial losses, analysts expect steel prices to recover once the strike nears resolution due to lean inventories among steel buyers and automakers.

Regulation

The British government's decision to postpone the 2030 ban on the sale of new petrol and diesel vehicles to 2035 has met strong criticism from automakers. They argue that the move will complicate supply chains, hinder the shift to eco-friendly cars, and increase uncertainty.

Representative Jason Smith, chair of the House Ways and Means Committee, has sought clarity from Tesla regarding its relationship with Chinese battery manufacturer CATL. Smith's inquiry comes amid concerns that electric vehicle subsidies may be channeled to overseas entities that raise security issues. This inquiry parallels congressional investigations into Ford's $3.5 billion investment to develop a battery plant in Michigan using CATL technology.

Risk Analytics

Supply Chain Dive: UAW strike: How auto supply chain managers can mitigate disruption

Shutdown

Volkswagen plans to cease vehicle production at its Dresden plant in Germany, which has been operational for over two decades. Despite this, the factory will not be shut down. Instead, its approximately 300 employees will be assigned to other positions, particularly in innovative production and testing.

The Dresden Transparent Factory has manufactured more than 150k vehicles since its inception in 2002. However, the demand for its EVs has decreased significantly, forcing Volkswagen to reconsider its production strategies across various locations.

Supply Chain

The ongoing UAW strike against the Detroit 3 automakers has exacerbated the already precarious financial situation($) for suppliers, with some experts attributing part of the blame to the automakers themselves.

Suppliers have faced financial pressures due to uneven production schedules, high material costs, labor market challenges, and component shortages since the 2019 GM strike.

Many Tier 1 suppliers have sought price concessions from automakers to account for increased costs but have often been met with limited success.

“The biggest concern I've universally heard from my supplier clients is the ability to come back online on short notice... It's going to be very difficult, especially the longer it goes on, and everyone is worried OEM customers are going to demand an overnight return to full production. It's not realistic."
- Dan Rustmann, co-chair of Detroit law firm Butzel's Global Automotive Group

Consequently, Tier 2 suppliers, who are more financially vulnerable, have been left in a fragile financial position. The strike's duration and potential expansion could further strain the supply chain's financial stability, especially when resuming production, as suppliers may have depleted their inventory and workforce readiness.

Clear communication between suppliers and automakers regarding ramp-up timelines is crucial to avoid financial penalties in supplier contracts.

The UAW strike has inadvertently affected Dana's driveline plants in Toledo and Napoleon, Ohio. The strike is in effect at the Toledo Jeep plant and Ford's Michigan Assembly plant, both of which are supplied by Dana. Both Dana plants are currently operational but are anticipated to halt operations.