Automotive Supply Chain Risk Digest #351

October 27 - November 2, 2023 by Elm Analytics

Closing

Bridgestone has completed the consolidation of its Thai tire manufacturing, with the Rangsit plant ending production and the Chonburi facility taking over the capacity.

Expanding

In its tentative deal with the UAW, Ford has proposed $8.1B in plant investments by the end of the 2023 agreement:

• Chicago Assembly Plant ($400M) Ford Explorer HEV+Police, Lincoln Aviator

• Dearborn Truck Plant / Rouge Electric Vehicle Center ($900M) F-150 Lightning+HEV+Raptor, new EV truck

• Flat Rock Assembly Plant ($50M) Mustang. new product

• Kansas City Assembly Plant ($1B) F-150 HEV+Police, Transit ICE+EV

• Kentucky Truck Plant ($750M) Super Duty, Expedition ICE+HEV, Lincoln Navigator ICE+HEV

• Louisville Assembly ($1.2B) Escape, Lincoln Corsair, new EV product

• Michigan Assembly Plant ($250M) Ranger+Raptor, Bronco +Raptor

• Ohio Assembly Plant ($2.1B) Super Duty, F-650, F-750 pickups, E-Series, new EV van

  

Stellantis has also agreed to billions in expansion:

• New Battery Plant ($3.2B) - 2028

• Mid-Size Truck Factory in Belvidere, Illinois ($1.5B) - 2027

• Toledo Jeep Operations ($1.5B) Wrangler EV - 2028

• 3x Michigan Assembly Plants ($3.5B) - Dodge Durango, Jeep Grand Cherokee ICE+EV - 2026, 2027

Asahi Kasei is boosting its EV battery separator output to support 1.7M EVs, with new lines in the US, Japan, and South Korea, starting in early 2026. With a $307M investment, capacity will reach around 12.9B sq ft annually in response to expected North American EV production growth.

Human Capital

Toyota is increasing wages for its US assembly workers to $34.80 an hour, up by 9.2%, effective January 1. This adjustment aligns Toyota's compensation with industry standards following wage increases for unionized workers at US plants of the Detroit 3 automakers.

While Toyota's workforce is non-unionized, the wage hike comes as the UAW expresses intentions to expand its influence in non-union plants by 2028.

Industry Directions

With the recent UAW strike causing over $10B in losses and the postponement of EV introductions, automotive suppliers are diversifying to mitigate risks ($) associated with unreliable volume forecasts and potential cost-cutting by automakers.

Diversification strategies include expanding into different sectors, such as defense, and offering a wider range of products to various customers.

Companies like Eaton are poised to grow their EV business but maintain robust alternative revenue streams. Storch Products is leveraging Tesla's consistent business and exploring defense sector opportunities.

Analysts underscore that spreading business across internal combustion and EV platforms is becoming increasingly important due to market volatility.

"As a supplier, your costs go up as you serve more and more customers… The supplier has to be cognizant to balance out the revenue opportunities to the additional costs."
- Dave Andrea, principal at Plante Moran

The Verge writes, "The early adopters have all, well, adopted" in The EV transition trips over its own cord. The rapid rise in EV sales and the expansion of models and charging infrastructure are juxtaposed with production delays, factory postponements, and a fragile charging system.

As EV adoption moves beyond early adopters, it faces the challenge of attracting a mass market that is more hesitant and sensitive to price and lifestyle changes.

Automakers are revising ambitious plans due to a combination of factors, including supply chain issues, political headwinds, interest rates, and affordability concerns.

This shift suggests a rocky road ahead for the widespread transition to EVs despite the market's initial surge.

Labor

The UAW concluded its strike against the Detroit 3 after reaching a tentative contract with General Motors, which promises a substantial increase in worker compensation.

Veteran workers' pay is set to rise about 33% by the end of the contract to $42.95 per hour, while temporary workers with 90 days' experience will see raises from 51 to 115%.

The deal also includes full-time status conversion for temporary workers after 9 months and brings GM's EV battery venture, Ultium Cells, under the national agreement.

Automotive News has published overviews of the tentative agreements across the Detroit 3 and live updates on UAW vote results.

Unifor has reached a tentative deal with Stellantis ($) after a brief 7 hour strike. The agreement follows the pattern of previously ratified contracts with Ford Motor Co. of Canada and General Motors Canada, which included significant pay raises and bonuses.

Although the deal is pending approval by Unifor members, it is seen as a culmination of the 2023 bargaining round with the Detroit Three automakers in Canada. It includes discussions on the new NextStar Energy EV battery plant joint venture.

The strikes led to a significant production downturn in Mexico, resulting in an estimated loss of $780M in the auto parts sector.

Mergers, Ventures, Acquisitions

The Alliance for Automotive Innovation, which includes major car manufacturers like General Motors and Toyota, has publicly opposed the acquisition of US Steel by Cleveland-Cliffs.

The group argues that the merger would give the combined entity an excessive market share in steel used for various automotive components and could lead to increased costs for the industry.

This, they fear, could adversely affect EV sales due to the combined company's control over 100% of the metal for EV motors, known as e-steel.

Opening

Epsilon Advanced Materials, an Indian supplier, is set to invest $650M million in a synthetic graphite anode production facility ($) in North Carolina, aiming to provide components for EV batteries.

The factory is positioned to assist US automakers and battery manufacturers in meeting the requirements of the Inflation Reduction Act by localizing their supply chains, with an expected annual output of 50k tons at full capacity by 2031.

Amid China's tightening export controls on natural graphite, Epsilon's focus on synthetic graphite caters to the anticipated demand for higher-capacity battery cells in the US.

Germany's BALLUFF opened its new 75k sq ft sensors and automation tech production facility in Aguascalientes, Mexico.

South Korea's Daedong Door and MR InfraAuto will begin construction of a new plant in Zacatecas, Mexico, in 2024.

Ford has postponed the construction of its second battery factory in Kentucky as part of a broader $12B EV investment delay in response to a "more challenging" EV market and financial difficulties. Despite the delay, Ford's first Kentucky factory is still set to open in 2025.

Production Increase

Our Next Energy Inc. (ONE), a battery startup, has initiated the production of prototype cells ($) at its ONE Circle plant in Van Buren Township, Michigan.

This marks a significant step towards the company's ambition to become a leading US battery manufacturer.

Led by former Apple employee Mujeeb Ijaz, ONE is focusing on lithium-iron phosphate cell production for both grid storage and automotive industries.

The startup, already supported by substantial investments and state incentives, is diversifying its market approach amid fluctuating EV demand and political uncertainties regarding funding for the Inflation Reduction Act.

Raw Material Disruption

China's new export restrictions on graphite will disproportionately impact foreign EV battery manufacturers that rely heavily on natural graphite and have yet to transition to synthetic alternatives as extensively as Chinese producers.

The policy mandates export permits for various forms of graphite, including high-end synthetic types, starting December 1.

This move will likely disrupt the supply chain for many global players in the EV market, who still need to match China's pace in adopting synthetic graphite, a material essential for the production of battery anodes.