Automotive Supply Chain Risk Digest #374

March 29 - April 4, 2024, by Elm Analytics

Bankruptcy

German EV startup Next.e.GO NV has filed for insolvency with the Aachen district court, citing challenges within the EV industry compounded by ineffective financing.

Disaster

On Tuesday, a M 7.4 magnitude earthquake hit off the coast of Hualien, Taiwan. The earthquake resulted in significant damage to infrastructure and loss of life, along with posing a major challenge to Taiwan's critical high-tech industries.

The island's top semiconductor manufacturer, Taiwan Semiconductor Manufacturing Co. (TSMC), was temporarily shut down due to the earthquake. They experienced damage, such as cracked wafers and machinery stoppages.

However, TSMC's advanced equipment remained undamaged, including the EUV lithography machines for cutting-edge processors. This enabled a quick recovery for TSMC, with over 70% of chip-making tools operational within 10 hours. Fab 18 in Tainan reached 80% functionality.

United Microelectronics Corporation (UMC), the world's third-largest chipmaker, also had to evacuate its facilities but is working quickly to resume total production.

Display manufacturers Innolux and AUO were also affected but faced no long-term operational impact.

While the chipmakers seemed to have dodged a bullet overall, the nature of the industry’s precision manufacturing requirement will likely take much longer to restore full production.

However, Taiwan's tech sector's quick response, particularly the semiconductor manufacturers, highlights the importance of disaster preparedness and resilience in sustaining the global technology supply chain during natural disasters.

Expanding

Renault has announced a $323M investment in its Sandouville plant in Northern France to produce new-generation electric vans starting in 2026. The company also plans to hire an additional 550 workers.

This initiative, part of the Flexis joint venture with Volvo and CMA CGM, aims to enhance Renault's electric vehicle offerings, specifically targeting the last-mile delivery market.

Human Capital

China's state-owned SAIC Motor is cutting jobs due to competitive pressures from BYD and Tesla.

The layoffs will affect joint ventures with General Motors, Volkswagen, and SAIC's Rising Auto EV subsidiary.

SAIC denies any downsizing intentions despite facing a 16% sales decline and heightened competition. The company employs tactics like enforcing stricter performance standards and incentivizing low-rated employees to resign.

Industry Directions

Yesterday, Ford announced that it would delay the production of at least two new electric vehicle models and increase the production of hybrid vehicles instead.

The company plans to manufacture a large electric SUV in Oakville, Ontario, in 2027, a two-year postponement from its original schedule, and an electric pickup truck in a new plant in Tennessee in 2026, marking a one-year delay.

These changes are part of Ford's broader strategy to offer a hybrid version of every model by the end of the decade. Ford has already begun producing hybrid versions of the Maverick, F-150 pickups, and Escape crossover.

The shift in strategy is in response to challenges in selling EVs profitably, a slowdown in sales growth, consumer concerns over charging infrastructure, and the appeal of hybrids.

Ford's focus on hybrids reflects a tactical retreat from its aggressive EV rollout plans, aiming to balance traditional, hybrid, and electric vehicles to sustain profitability.

Mergers, Ventures, Acquisitions

• ZF Rane Automotive India is acquiring TRW Sun Steering Wheels, a steering wheel manufacturing company based in Gurugram, India.

• MAHLE and FORVIA HELLA finalized the sale of their 50/50 JV Behr-Hella Thermocontrol BHTC to AUO Corporation.

• Transom Capital Group, a private equity firm, has acquired a majority stake in Webasto Charging Solutions. The company, which will be rebranded as Ampure, will continue manufacturing EV charging solutions.

• GAC Aion has partnered with Indomobil Group to establish an EV factory in Indonesia. In January, it began constructing its Thailand factory, its first production site outside China.

Opening

• BMW began constructing a new plant for high-voltage battery assembly in Irlbach and Straßkirchen, Lower Bavaria, Germany. The initial phase will employ about 1.6k people, with plans to double this workforce later. Covering approximately 10M sq ft, this facility significantly expands BMW's electric vehicle production capabilities.

• BYD's new plant in Thailand will produce 150k EVs annually. Production will start in Q3 as part of its aggressive international growth strategy.

• India Japan Lighting Private Limited, a subsidiary of Japan's Koito, began operating its new Gujarat, India, plant in March 2024. The location will produce 500k headlamps and rear combination lamps annually by March 2025, serving customers such as Maruti Suzuki India and Tata Motors.

• Sony Semiconductor Solutions Corporation initiated operations of several production lines at a new fabrication plant in Thailand, focusing on assembling image sensors for automotive applications.

• Valeo opened a new plant in Daegu, Korea, dedicated to producing Advanced Driver Assistance Systems components. Starting with parking assistant sensors, this facility plans to produce ultrasound sensors, radars, cameras, and LiDARs.

• China's Chery has formed a joint venture with Vietnam's Geleximco to establish an $800M factory in Thai Binh, Vietnam. The JV aims to produce 200k EVs annually, with the first construction phase completed in Q1-2026.

Production Decrease

Tesla's Q1 2024 vehicle deliveries totaled 387k, a decrease from Q4-2023's nearly 500k and a year-over-year drop from Q1-2023's 423k vehicles.

This downturn, the first since 2020 and the first quarter with under 400k deliveries since Q3 2022, is attributed to early production adjustments for the Model 3 at Fremont, shipping delays from Houthi rebel attacks, and an arson incident at its Berlin factory.

Despite Tesla's explanations, analysts like Dan Ives of Wedbush Securities label the quarter a significant setback. They urge Elon Musk to respond strategically amidst intensifying EV market competition and price cuts from rivals like Ford and General Motors.

Production Increase

On the other hand, Tesla has begun producing right-hand-drive vehicles at its German factory for export to India.

This strategic move shows Tesla's interest in entering the Indian automotive market. The company is currently searching for a local manufacturing site in India, and it plans to invest $2B in it.

This aligns with India's recent policy to reduce import taxes for EV manufacturers who commit to local production, making it easier for Tesla to enter a market where electric vehicles represent only a small but growing share of sales.

The company's plans include focusing on the Model Y for initial exports, expanding a charging network, and increasing local sourcing of components, potentially positioning India as a significant sourcing hub beyond China.

General Motors and LG Energy have started production $ at their Ultium Cells battery plant in Spring Hill, Tennessee.

This marks the beginning of operations at the second of four planned joint venture battery factories in the US. The first battery cells shipped on March 21 will be used in the electric Cadillac Lyriq at GM's Spring Hill Manufacturing plant.

The plan is to expand shipments to other GM plants as production scales up.

The Spring Hill facility aims to achieve a 50 GWh capacity at full operation, supporting GM's strategy to accelerate its EV production on the Ultium battery platform.

Regulation

Through the Alliance for Automotive Innovation, automakers have appealed to the White House to block Cleveland-Cliffs' potential acquisition of US Steel, citing anti-competitive concerns.

The automakers fear that a merger would result in 65 to 90% of automotive steel and all domestic electrical steel for EV motors being controlled by one entity, raising prices for steel and vehicles for American consumers.

This concern comes as US Steel's current agreement to be acquired by Nippon Steel for $14.9B faces scrutiny over maintaining US ownership, with Cleveland-Cliffs positioned as a possible alternative bidder.

Risk Analytics

The auto industry has emerged as the third-largest consumer of semiconductors $ globally, capturing 17% of worldwide microchip purchases in 2023, a rise from 14% the previous year.

This growth is propelled by the increasing integration of chips in vehicles, expected to swell from $500 per vehicle in 2020 to $1,400 by 2028, reflecting the sector's escalating demand for connectivity, safety systems, and electric vehicles (EVs).

Despite this surge, the industry predominantly utilizes older semiconductor technologies, a trend anticipated to evolve with the electrification of vehicles.

Companies like Soitec foresee a boom, especially with innovations like silicon carbide chips for EVs, predicting a doubling of their automotive business.

However, challenges such as delays in new plant productions, such as TSMC's planned Arizona facility, and a heavy reliance on outdated semiconductor tech persist, potentially hindering immediate benefits from recent massive investments in semiconductor manufacturing capacity, notably spurred by the US's CHIPS and Science Act.