Automotive Supply Chain Risk Digest #375

April 5 - 11, 2024, by Elm Analytics

Closing

BOS has announced plans to shut down its Brotterode-Trusetal plant in Germany by 2025, affecting approximately 80 employees. The company intends to relocate the plant's plastic injection-molding production for interior trim to other BOS locations and external suppliers. The closure is attributed to "developments in the global automotive market."

Earning Dip

Mercedes-Benz's sales declined 6% in Q1-2024 due to supply chain bottlenecks in Asia and model year changeovers.

Expanding

Japanese Tier 2 supplier Taxan (part of KAGA Electronics) has expanded its San Luis Potosí plant in Mexico. The expansion includes 11 assembly lines across 288k sq ft, allowing Taxan to produce 500,000 electronic cards each month for customers like Nissan, Ford, Mazda, Toyota, and Honda.

Industrias Ochoa will expand its manufacturing operations in Querétaro, Mexico, which produces metal stampings, welding, and automotive assemblies. The expansion will double the production area to 129k sq ft, adding a 1k ton flexible stamping line and robotic welding cells to serve manufacturers and Tier-1 suppliers of automotive brands such as Stellantis, American Axle, and Hirotec.

Industry Directions

NYTimes: What Happened When a German Car Factory Went All Electric

China currently has a record number of 47 new car-carrying vessels on order, which is projected to give it the fourth-largest fleet by 2028. This expansion into international markets is partly driven by automakers' need to bypass domestic competition and the slow economy. China has recently surpassed Japan as the top auto exporter.

The country's aggressive expansion in EV exports and the corresponding increase in car-carrying ship orders is a testament to its growing influence in the global automotive market. However, this also raises concerns about market saturation and international trade tensions.

Labor

Workers at the Mercedes-Benz factory located in Alabama have recently requested a vote on unionization through the UAW. This move comes as part of a larger effort to expand the union's presence in automotive plants located in the southern United States.

The UAW, which has had recent success with Detroit's Big Three automakers, is also focusing on factories like Volkswagen's in Chattanooga, Tennessee, as the industry begins to invest more in electric vehicle production.

Of note, in 2021, the German Parliament passed the Act on Corporate Due Diligence Obligations in Supply Chains. The Supply Chain Act includes, among eleven human rights conventions, one of which prohibits "the disregard of the right to form trade unions or employee representation bodies..."

Failure to comply comes with stiff administrative fines, which potentially have a larger impact than is enforceable by the US NLRB. However, Germany's act is so new that its impact is largely untested.

Under the IF Metall union, Swedish Tesla workers are still on strike despite Musk's claim that "the storm has passed." The discord between Musk's statements and the reality on the ground highlights the challenges global companies face in adapting to local labor laws and customs, especially in regions where collective bargaining is the norm.

Mergers, Ventures, Acquisitions

Croatia's Rimac is partnering with BMW on EV battery technology. BMW has an established battery cell research center in Germany; however, it has entrusted major developmental tasks to its partners, including CATL and EVE Energy.

US President Biden has opposed Nippon Steel's acquisition of US Steel, emphasizing the importance of American ownership of the steel industry in the United States. This decision has significant implications for the growth of the electric vehicle market.

The Alliance for Automotive Innovation, representing automakers, has raised concerns about the potential monopolistic control over pricing and limited competition that could result from an acquisition by American-owned Cleveland-Cliffs.

Opening

Malaysia's Graphjet plans to build a commercial artificial graphite production facility in Nevada. The facility will make EV-battery-grade graphite and graphene directly from agricultural waste and aims to open in 2026.

Chinese automaker Chery is set to enter the European automotive market by taking over the Barcelona, Spain factory Nissan closed in 2021. The move marks Chery's first foray into Europe, initially planned for 2017 but delayed. The company is also exploring opportunities for further manufacturing expansion in Italy.

China's UTAS-NOVA Automotive Lighting Systems México will establish a new $36.3M plant in Aguascalientes, Mexico, to manufacture exterior lighting assemblies.

Fuyao Glass Industry Group has started building a new production base in Hefei, Anhui Province, China. This company aims to produce 4M sets of automotive glass and an equal number of replacement glass pieces yearly, a 20% increase in capacity.

Raw Material Costs

Copper futures have been at their highest price since the middle of 2022 due to the high demand for the metal. This demand is mainly driven by the improving economic conditions in the US and China and the long-term trend of the energy transition.

However, more government intervention and protectionism could slow down mining or expansion plans, and higher interest rates have already restricted investments in mining. This could further limit supply, potentially driving costs even higher.

Relocating

Nexteer Automotive Mexico plans to relocate 13 metal-mechanical suppliers from China to Mexico within the next two years.

Risk Analytics

According to analysts, the recent collapse of the Francis Scott Key Bridge in Baltimore is not expected to significantly impact the automotive sector, despite the port being the central hub for light vehicle trade in the US. Baltimore accounts for 15.2% of vehicle trade in the US, significantly more than any other port. However, alternative ports such as Brunswick, Newark, and Philadelphia are available to mitigate the impact on vehicle shipments.

Moreover, Baltimore's contribution to the automotive parts trade is lower than initially expected, reducing potential vehicle production risks. The minimal impact expected from the Baltimore port incident on the automotive supply chain highlights the resilience and adaptability of the sector's logistics networks, in contrast to the significant disruptions caused by events like the COVID-19 pandemic and semiconductor shortages.

Automotive parts manufacturers are advocating for the adoption of standardized sustainability reporting $ metrics. This push for sustainability reporting is shown in a recent Motor & Equipment Manufacturers Association (MEMA) survey.

The survey reveals significant industry challenges, including automakers' and suppliers' reluctance to share data and the difficulties that smaller suppliers face in meeting varying customer requirements. It also shows that 53% of suppliers need a dedicated sustainability manager, stressing the resource constraints that smaller companies face in achieving sustainability targets.

Significant challenges lay ahead for owners of software-dependent vehicles, especially as more EV startups declare bankruptcy $. Companies like Fisker and Lordstown Motors have warned that in the event of bankruptcy, no entity remains responsible for critical software updates essential for vehicle safety and functionality.

The industry's ongoing shift towards software-defined vehicles heightens these risks, making the right to repair and software accessibility crucial for consumer protection. The potential cessation of support for software-dependent vehicles due to EV startup failures could leave consumers without necessary updates, highlighting the need for regulatory and industry shifts towards more sustainable software maintenance practices.

Shutdown

Rivian is shutting down its Normal, Illinois plant for retooling from April 5→30. The company expects significant cost reductions through efficiency improvements.

General Motors will temporarily shut down its Fort Wayne Assembly in Indiana for three weeks across spring and summer to retool for the next-generation Chevrolet Silverado and GMC Sierra. This will affect four other component plants in Michigan, Indiana, and Ohio.