Automotive Supply Chain Risk Digest #370

March 1 - 7, 2024, by Elm Analytics

Congratulations, you've made it! It's Friday!

I'd just like to extend a warm welcome to our new readers this week.

We’re so glad you've joined us! 👋

As editor of a newsletter about the issues that impact automotive supply chains, I was taken by this week's Wall Street Journal article $ on how a small component on a circuit board, several layers deep in the supply chain, can impact a large swath of the luxury vehicle market.

The incident illustrates the complexities of supply chain mapping and visibility, particularly under the US Uyghur Forced Labor Prevention Act (UFLPA), as automotive companies struggle to ensure compliance with laws against forced labor in regions like Xinjiang.

This small component, a LAN transformer integral to powering in-vehicle CAN and ethernet networks, is used in Volkswagen's luxury car brands (Porsche, Audi, and Bently).

The manufacturer, JWD Technology from China, was added to the US entity list last December over allegations of forced labor, which has led to delays in importing these luxury vehicles into the US.

Keep in mind that JWD was added to the list well after VW had made part selections for manufacturing.

As we speak, VW is replacing these parts with substitutes to move these vehicles through US ports. They expect to be done by the end of March, roughly 45 days after being flagged.

This situation reveals how difficult it can be to comply with American trade policies, especially when preventing goods tied to forced labor from entering the country.

It's not just about JWD Technology—this problem affects all of our complex global supply chains.

Even companies that try to follow the rules can find themselves in trouble because these supply chains are so opaque.

As most modern vehicles have 30k+ parts spread among multiple Tiers of suppliers, I'd even venture to say we're squarely on the complex side of things. 🤔

At Elm Analytics, we strive to increase visibility and use supply chain mapping to mitigate risks.

This incident is a stark reminder for everyone in the automotive industry and beyond to invest in the tools and practices that can help us understand these complex networks better.

With collaboration, innovation, and diligence, we can build a future where our supply chains are resilient and can withstand the challenges of our time.

Enjoy your weekend,

Nick Gaydos
Editor

Feel free to drop us a line or leave your name if you’d like to share your thoughts related to this issue or learn more about how Elm Analytics helps manufacturers become more resilient.

Closing

Stellantis is selling the 781k sq ft Tipton, Indiana transmission plant inherited from FCA.

The plant, which opened in 2014 to manufacture fuel-saving transmissions for vehicles like the Chrysler Pacifica Hybrid minivan, idled last June and officially closed last fall as per Stellantis' labor agreement with the UAW. Its employees have been transferred to other sites, marking Stellantis' efforts to optimize its manufacturing footprint.

Expanding

GM will invest $23M in automating its Charlotte, North Carolina-based Customer Care and Aftersales facility to enhance workplace safety and modernize operations.

This effort aims to address the increasing vehicle demand and ensure timely delivery of parts despite the Charlotte facility being smaller and higher in volume than typical GM distribution centers. GM will install the new systems by June and be fully operational by August 2025.

Human Capital

Suppliers anticipate higher labor costs $ in 2024 as they adjust wages to remain competitive with automaker jobs. This pressure comes as material cost inflation begins to ease, offering some financial relief.

However, the impact of the UAW's 25% wage increase for Detroit 3 workers will extend across the supply chain, affecting large suppliers like Magna International as well as smaller entities.

Notably, smaller suppliers and tooling companies face difficulties raising wages and staying competitive due to the nature of their business.

Tooling, traditionally among the most lucrative jobs, has seen challenges in wage competitiveness without the ability to easily pass cost increases onto customers, highlighting a unique struggle within the supply chain amidst global labor cost escalations.

"They've seen pay increases, but it's hard to give more raises because you don't pass on price increases in tooling... If I'm making a million stamped parts per year, I can for material price increases. But for tooling, it's a one-time spot buy, and you're competing with China."
- Laurie Harbour, CEO of Harbour Results Inc

Our Next Energy Inc (ONE), a battery startup based in Southeast Michigan, has conducted another round of layoffs, cutting 37 jobs, 24 of which were in Michigan, primarily in administrative roles. Following these cuts, ONE has approximately 240 employees in Michigan.

The layoffs, strategic refocus, and recent leadership change underscore the company's efforts to manage financial challenges and secure funding for operations through the end of 2024.

Stellantis reduced its workforce to comply with sales adjustments related to California emissions regulations.

It laid off 341 supplemental workers $ at its Toledo Assembly Complex and relocated some workers from its Detroit Assembly Complex-Mack, with both plants shifted from three to two shifts. In January, Stellantis laid off 539 US supplemental workers.

Labor

Workers at GNS North America in Canton, Michigan, voted in favor of joining the UAW $ with a close vote of 42 to 37. The facility manufactures structural parts for General Motors, Tesla, and Stellantis and employs 110 workers who will now become part of UAW Local 900, Region 1A. This vote is considered a victory among the UAW's ongoing efforts to expand its representation within the auto industry.

NYTimes: Big Labor Gamble: Push to Unionize Every U.S. Auto Plant

Litigation

Porsche and the Volkswagen Group are facing lawsuits from Mitsui OSK, the operator of the Felicity Ace ship, and Allianz, its insurer, over allegations that a faulty Porsche EV battery sparked a fire leading to the sinking of the cargo ship in 2022 near Portugal.

The boat was transporting cargo valued at around $155M, including vehicles from Porsche, Volkswagen, Bentley, and Lamborghini. Legal discussions are scheduled for later in March to resolve disputes over collateral posting for the lawsuits filed in Germany, which could lead to a settlement or proceed to court if unresolved.

Mergers, Ventures, Acquisitions

Tata Motors plans to demerge its auto business into separate divisions for passenger and commercial vehicles, focusing on electric vehicles for the passenger sector.

The demerger aims to increase focus and agility, specifically in EVs, autonomous vehicles, and software development. To support this shift, Tata Motors plans to invest $18B over five years in EV production, including the launch of the fully-electric Range Rover.

Tata & Sons is also considering a spinoff and public listing of Agratas, a battery venture planning a $4.8B gigafactory in Somerset, United Kingdom.

Fisker is reportedly discussing a potential partnership and investment with Nissan to develop and produce its Alaska electric pickup truck, potentially at Nissan's US assembly plants in Tennessee or Mississippi. This development puts Fisker's plans to manufacture the PEAR electric vehicle at Foxconn's Lordstown facility on hold.

Fisker's financial struggles, highlighted by a $463M loss in Q4-2023, have led to a strategic shift towards securing a partnership with a significant automaker before proceeding with future projects like the Alaska pickup and the PEAR EV.

Stellantis will invest $6.07B in Brazil from 2025 to 2030, aligned with Brazil's Mover automotive program, focusing on sustainability and reduced environmental impact. The company will launch over 40 new vehicles, including hybrid-flex and EVs. Stellantis has also acquired a controlling stake in Brazilian automotive services firm DPaschoal.

Toyota also announced a $2.22B investment in Brazil in two phases by 2030, including the production of a new vehicle designed for the Brazilian market. Additionally, the company will produce a new hybrid-flex vehicle there by 2025 and enhance production capabilities at its Sao Paulo state factories, including engine and battery production expansions in Porto Feliz and Sorocaba, respectively.

In other news, Toyota will fully acquire Primearth EV Energy Co, a 1996 joint venture with Panasonic. Toyota aims to make Primearth EV Energy Co a wholly-owned subsidiary to bolster its response to the fluctuating demand for EVs. This move is part of Toyota's broader strategy to adapt to the electric vehicle market, which plans to triple EV production by 2025 and invest over $70B in electrification by 2030.

Primearth, which has been supplying batteries for Toyota's hybrids like the Prius, will support Toyota's ambition to make mass-market EVs more competitive with its battery technology advancements.

Opening

Germany's Orafol, which makes wraps and decals for cars and other industries, is nearing the completion of a $100M expansion $ in Orion Township, Michigan.

The development moves production from Europe to the Detroit area, spurred by increased business from Ford, GM, Stellantis, and others.

The company has added a new 112k sq ft factory with two high-level coating lines and plans to update and expand its nearby office building. The expansion is a strategic effort to mitigate supply chain risks and currency exchange fluctuations while increasing capacity for the automotive market.

Production Decrease

In the nearterm, Rivian is reducing its operations from three shifts to two at its Normal, Illinois plant. The company aims to maintain its production level at around 57k vehicles for the year despite analysts expecting an initial increase to 81k. This adjustment is in preparation for a plant shutdown in April for retooling.

Production Increase

However, Rivian Automotive's decision to produce the R2 crossover at its existing Normal, Illinois facility rather than waiting to complete its new plant in Georgia will enable an earlier launch in the first half of 2026 and save the company over $2.25B.

This move, which leverages the Illinois plant's current capacity and expertise, is a strategic response to accelerate the R2's market entry and effectively manage costs despite Rivian still facing significant financial challenges and soft EV demand in the US.

Regulation

The Japan Fair Trade Commission (FTC) issued a warning to Nissan for illegally cutting payments to 36 subcontractors, totaling over $20M between January 2021 and April 2023.

This practice, seen as an abuse of power over smaller firms, may have a decades-long history, marking the most significant underpayment issue since the subcontract law's inception in 1956.

The FTC highlighted the severity of this violation as the government is urging small and medium-sized enterprises to increase wages.

The antitrust authority recommended Nissan improve its governance through regular compliance audits and training. Nissan pledged to enhance compliance and prevent future occurrences.

Shutdown

Tesla suspended production at its Berlin Gigafactory in Germany early Tuesday.

A suspected arson attack on a nearby high-voltage pylon disrupted the power supply to the facility and the surrounding region.

A group named Vulkangruppe, claiming ties to the antifascist movement, has taken responsibility for the incident and criticized Tesla's expansion plans.

The halt in production, affecting approximately 12.5k employees, is part of ongoing challenges for Tesla in Europe, including protests and opposition to its environmental impact and expansion efforts.

Volkswagen is temporarily halting the production of EVs at its Emden, Germany plant, including the ID.4 and ID.7 models, until Monday due to a shortage of electric motors, mirroring issues at the Zwickau plant.

The production stoppage in Zwickau, which affected the assembly of the ID.4, ID.5, Audi Q4 e-tron, and Q4 Sportback e-tron, impacted over 1k employees.

The bottleneck is attributed to the transition to a more powerful, efficient electric motor, the APP550, which has encountered supply chain disruptions at VW's Kassel components plant.

Despite these challenges, VW aims to prioritize the ID.7's production ramp-up in Emden, while Zwickau's production line 1, manufacturing the VW ID.3 and Cupra Born with the older motor model, remains unaffected.