Automotive Supply Chain Risk Digest #372

March 15 - 21, 2024, by Elm Analytics

Bankruptcy

Fisker announced a six-week pause in production starting Monday as part of its efforts to address financial challenges and avoid bankruptcy.

The EV startup has secured an additional $150M in funding from an existing investor and is exploring a potential deal with a "large automaker" for investment, a North American manufacturing agreement, or joint EV platform development.

Fisker's decision to halt production aims to optimize its inventory amid reports of hiring restructuring advisers for potential bankruptcy.

Despite delivering 1.3k vehicles globally since the start of 2024 and having 4.7k in inventory, Fisker has been under financial strain, as highlighted by a Q4-2023 earnings call revealing substantial doubts about its continuing viability and plans to lay off 15% of its workforce.

Expanding

Renault Korea Motors will invest $523M to establish hybrid vehicle production lines at its existing Busan, South Korea plant. The company plans to produce midsize hybrid sport utility vehicles for both domestic and export markets and is also considering creating new electric vehicle models at the plant.

Industry Directions

Boston Consulting Group: Can OEMs Catch the Next Wave of EV Adopters?

Labor

Workers at Volkswagen's Chattanooga, Tennessee, assembly plant have filed a petition with the National Labor Relations Board to hold a union election, signaling a crucial moment in the UAW's efforts to expand its representation to foreign-owned automakers in the southern US.

This marks the UAW's third attempt in a decade to unionize the VW Chattanooga workers amid broader campaigns to organize workers at non-union US auto assembly plants owned by foreign companies.

Unifor, representing 3k hourly workers at Ford's Oakville, Ontario, assembly plant, is seeking clarification from Ford regarding reports of a delay $ in the plants’ retooling from ICE to EV production.

Even though previous plans announced a $1.3B upgrade, recent reports suggest Ford is pivoting to launch an affordable EV in late 2026 at a different location.

Most of Tesla's employees at its Gruenheide plant in Germany have voted against joining the IG Metall Union, opting instead for non-unionized representation in the new works council. Despite this, IG Metall expects to secure 16 of the 39 seats, becoming the largest group within the council.

Litigation

Gotion has filed a lawsuit against Green Charter Township, Michigan, alleging a breach of contract related to a $2.36B EV battery factory project.

The legal battle stems from a dispute over water infrastructure commitments. A newly elected township board, accused of harboring anti-Gotion sentiment, attempted to halt the project.

This board had rescinded previous agreements supporting the development, which aims to create 2.3k jobs and contribute to Michigan's EV battery supply chain.

Despite opposition citing environmental concerns and the company's ties to China, Gotion is seeking an injunction to enforce the development agreement and continue the project, which has already seen significant financial investment, including a $715M incentive package from Michigan.

Mergers, Ventures, Acquisitions

BAIC, CATL, and Xiaomi have formed a joint venture, Beijing Era New Energy Technology, to establish a battery cell factory in Beijing with an initial investment of $138M to support Xiaomi's SU7 EV model.

Opening

Yokohama has announced plans to construct a new manufacturing facility in Coahuila, Mexico, with an annual production capacity of 5M tires and an investment of $380M. The plant, which will start construction in Q2-2024 and begin production in Q1-2027, supports Yokohama's strategy to meet the growing North American tire demand with local production.

Magna has announced it will establish a new $166M plant in Ramos Arizpe, Coahuila, Mexico, to manufacture structural parts for EVs.

Plastic Omnium inaugurated a new Technical Centre and broke ground on a 215k sq ft manufacturing plant in Pune, India, its fifth in the region.

Production Decrease

Stellantis workers at the Maserati production line at the Mirafiori plant in Turin, Italy, will be placed on reduced-hours contracts for the remainder of the year, affecting up to 968 employees.

This decision comes as the plant transitions to new Maserati models, resulting in a temporary decrease in output and subsequent wage reductions for part-time work. This announcement follows Stellantis's previous decrease in production at the Mirafiori plant, attributed to weak demand for the electric Fiat 500.

Production Increase

General Motors' efforts to scale up its EV production, particularly with its Ultium battery packs, have been hindered by automation issues, software glitches, and production delays.

Factory Zero, GM's automated assembly line for pouch-shaped battery cells, has faced technical and safety challenges, including alignment issues with battery cell tabs and multiple fires.

Even though GM has missed delivery targets for two consecutive years, the company is optimistic about overcoming $ its "production hell." It aims to manufacture 200k to 300k EVs this year, a substantial increase from the previous year but still below initial ambitions.

Raw Material Costs

The US is actively working to decrease its reliance on China for graphite, essential for lithium-ion batteries in EVs. China produces 77% of the world's graphite, and the US imports 42% of its graphite needs from the country.

Incentives from the 2022 Inflation Reduction Act and restrictions via the 2022 Foreign Entity of Concern guidance are pushing for a more localized EV battery supply chain.

North American companies like Westwater Resources, Panasonic Energy, and Nouveau Monde Graphite are expanding their production capacities and securing offtake agreements to bolster the domestic supply chain.

Though these efforts have been made, challenges persist due to China's dominant role in the global graphite market, raising concerns about the feasibility of completely decoupling from Chinese supplies.

The shift toward developing a North American graphite supply chain is crucial for the US's efforts to reduce dependency on China and ensure the resilience and sustainability of the US EV battery supply chain in the face of geopolitical tensions and supply chain vulnerabilities.

The shift towards electric vehicles is affecting the demand for platinum group metals used in catalytic converters for internal combustion engines.

Analysts predict a decline in auto sector demand for platinum and palladium beyond 2025, casting doubt on substantial growth in hydrogen-related platinum demand amidst falling prices.

Regulation

The Biden administration has issued a significant climate regulation, likely requiring most new cars and light trucks in the US to be electric or hybrid by 2032.

This rule aims to reduce tailpipe pollution drastically, a significant carbon emission source.

The regulation could transform the US auto market, pushing the sale of EVs from 7.6% to over 56% of total sales.

Automakers have flexibility in compliance with stringent average emissions limits across their product lines.

To ensure the regulation's durability, the administration has made concessions to car manufacturers and the United Auto Workers, adjusting the adherence timeline to ease the initial pace and significantly increase requirements after 2030.

This regulation is part of a broader effort to confront climate change, complemented by the 2022 Inflation Reduction Act, aiming for a significant reduction in greenhouse gas emissions.

The rule's flexibility for manufacturers, the strategic timing to safeguard against political rollback, and concessions to stakeholders like the UAW illustrate the administration's multifaceted approach to advancing its climate agenda amidst a complex regulatory and political landscape.

Stellantis has agreed to comply with the state of California's zero-emissions, light-duty vehicle sales requirements through 2030, despite earlier challenges to join a similar agreement made by other automakers in 2019.

Risk Analytics

AlixPartners' 2024 Disruption Index (pdf) survey reveals that most automotive executives expect considerable business disruptions in the coming year, with 32% anticipating significant disruption and 60% expecting moderate disruption.

Around 60% of these executives struggle to prioritize which disruptive forces to focus on as the industry navigates from crises like the pandemic and supply chain disruptions to the challenges of transitioning to EVs and investing in software and emerging technologies.

The most significant disruptive forces identified include regulatory policies, electrification, interest rates, and software-defined vehicles.

Although they view these changes as opportunities, 86% of executives reported seeing less than a 10% return on investment from digital transformation efforts over the past year, indicating a gap between the potential for growth and current outcomes.

General Motors is investing nearly $9B in EV production in Michigan, with a $4B retooling of Orion Assembly for electric pickups and a $2.6B new Ultium battery plant.

However, suppliers are facing challenges $ with unpredictable volumes and need more stable production guarantees in contracts. They risk losing business if they cannot adapt.

This underscores the broader industry challenge of transitioning to EV production, highlighting the delicate balance suppliers must maintain between investing in future technologies and managing current uncertainties.

Yet, some suppliers are continuing with their projects, like Piston Automotive and Gestamp, while others, like Lear, are re-evaluating their investments due to the uncertainties surrounding EV production volumes.