Automotive Supply Chain Risk Digest #376

April 12 - 18, 2024, by Elm Analytics

Disaster

The Occupational Safety and Health Administration (OSHA) has opened an investigation into a recent worker's death at the Kumho Tire facility in Macon, Georgia. The plant has a documented history of safety issues, including previous fines exceeding $500k for various health and safety hazards.

Expanding

BMW is expanding its Plant Landshut in Germany to enhance production facilities for Neue Klasse models' central housing of electric drive units. This development includes a new 129k sq ft production hall and increases the facility's annual production capacity by about 30%.

Hyundai Motor Group is expanding its hydrogen fuel cell system production at the HTWO Guangzhou facility in China. Within the year, it plans to initiate pilot projects for commercial hydrogen fuel cell vehicles.

Sion Power has partnered with Muhlbauer Group to expand its production of large-format lithium cells in Roding, Germany.

Human Capital

Tesla has announced it will lay off over 10% of its workforce, approximately 14k employees, amid declining sales and increasing competition. This significant workforce reduction coincides with the resignations of two senior executives, signaling a period of considerable turmoil within the company.

The layoffs and executive departures underscore the challenges facing Tesla as it grapples with competitive pressures and strategic pivots under CEO Elon Musk's leadership.

Alongside broad workforce reductions, Tesla is reportedly making significant cuts to specific projects at its Gigafactory in Texas, indicating a strategic shift and internal upheavals.

Key initiatives, such as the 4680 battery cell production and the cathode factory project, which have faced severe delays, are seeing significant shakeups, including the departure of senior project leaders.

Moreover, Tesla has discontinued the NV9 project aimed at developing a cheaper next-gen electric vehicle, redirecting those resources towards its ambitious Robotaxi program and a new data center intended to support its AI and self-driving technology aspirations.

Rivian announced a second round of job cuts this year, reducing its workforce by approximately 1% to align costs with the current slowdown in EV demand. This follows a 10% reduction in February after a lower-than-expected production forecast for 2024. The layoffs are part of broader cost-cutting measures, including internalizing parts production and renegotiating supply contracts.

Bosch announced plans for further cost cuts and potential staff reductions amid a forecast of stagnant vehicle production and constrained profit margins for 2024. CFO Markus Forschner indicated that the restructuring and process improvements initially might negatively impact the company, with benefits expected to materialize later.

Labor

The Mercedes-Benz plant in Vance, Alabama, will hold a unionization vote May 13-17. The union drive is backed by most of the plant's 5.2k employees and highlights ongoing labor challenges in the US automotive sector, particularly in Southern states. The outcome of the vote could indicate a significant shift in labor relations and working conditions in the region.

Litigation

Stellantis is currently grappling with a series of disputes with its parts suppliers $ in North America. This issue, which has its roots in the company's policy to not accommodate inflationary cost increases, has not only led to several legal confrontations but also caused significant operational disruptions.

Some suppliers, such as Kamax and MacLean-Fogg Component Solutions, have halted shipments, forcing Stellantis to resort to legal action at Oakland County Circuit Court in Michigan.

However, a recent ruling by a judge has denied Stellantis's motion to force MacLean-Fogg to continue delivering critical transmission components, thereby placing the production at the Kokomo, Indiana plants in immediate jeopardy of a shutdown.

In fact, Stellantis avoided plant closures by making a $100k payment under protest $ to MacLean-Fogg to keep pinions and gears flowing. The disputed payment should keep operations running until Stellantis receives a definitive court order in a lawsuit against the supplier.

These disputes are part of a larger pattern of supply chain challenges that emerged after Stellantis announced a "no more claims" policy at a town hall in Novi, Michigan. This policy has significantly strained supplier relationships, leading to multiple lawsuits and public disputes.

Suppliers' refusal to ship parts has not only led to production delays and plant shutdowns but has also highlighted the increasingly contentious nature of negotiations post-Stellantis-Peugeot merger.

Stellantis's stance on supplier contracts and cost absorption has provoked strong reactions within the industry, affecting its long-term supplier relationships and operational stability.

These disputes illustrate the critical vulnerabilities within Stellantis's supply chain management, which could have severe production setbacks and financial implications in the automotive industry.

Stellantis is also embroiled in a contentious lawsuit with Yanfeng, stemming from a November 2023 ransomware attack $ that disrupted its production and led to over $300M in lost revenue.

The cyberattack caused significant shutdowns at three Jeep and Ram assembly plants in metro Detroit and one in Mexico, impacting the production of 6k vehicles.

Following the incident, Stellantis sought compensation from Yanfeng, who responded by halting shipments and later countersuing.

Yanfeng requested "damages arising from FCA's practice of systemically ordering components and effectively canceling its orders last minute including labor, storage, scrap and raw material costs unnecessarily incurred by Yanfeng."

Yanfeng claimed "force majeure," asserting that the cyberattack was beyond their control.

This legal battle is emblematic of deteriorating relationships between Stellantis and its suppliers, exacerbated by disputes over financial responsibilities and supply chain commitments.

The legal conflict between Stellantis and Yanfeng highlights broader vulnerabilities in the automotive supply chain, particularly how cybersecurity issues can escalate into significant financial and relational strains between automakers and their suppliers.

Mergers, Ventures, Acquisitions

Solero Technologies, headquartered in Rochester Hills, Michigan, announced its acquisition of Kendrion's automotive business, which specializes in intelligent actuators. This acquisition aligns with Solero's growth strategy in active suspension and electrification components, significantly expanding its global footprint with the addition of five European plants in the Czech Republic, Germany, Romania, and the U.S.

Forvia is currently negotiating with Chinese carmakers such as Li Auto, Chery, and Leapmotor, who are preparing to expand their production into Europe. The company aims to diversify its partnerships and reduce its reliance on BYD. This move comes as part of Forvia's strategy to capitalize on the increasing interest of Chinese OEMs in establishing a presence in European markets.

Opening

• This week, Yokohama began constructing its first tire plant in Coahuila, Mexico. The 645k square meter facility should come online in early 2025.

• Germany's Kirchhoff Automotive will build a new 1M sq ft plant in Puebla, Mexico. The plant will produce rear seats with welded backrests and dashboard supports, mainly for its customer Volkswagen.

• BASF has launched its prototype metal refinery for battery recycling in Schwarzheide, Germany.

Regulation

Under significant pressure from the US, Mexico has decided to cease offering incentives such as low-cost public land or tax reductions to Chinese EV makers looking to establish production facilities in the country.

This move aligns with US concerns that Chinese automakers might use Mexico as a gateway to the North American market, bypassing high US tariffs. Despite US Trade Representative Katherine Tai’s emphasis on protecting domestic EV industries from subsidized competition, Chinese companies like BYD are actively seeking less substantial state-level incentives in Mexico, signaling ongoing efforts to maintain a presence in the region.

This development highlights the geopolitical tensions in the auto industry, where trade agreements and national security concerns influence manufacturing and market entry strategies, particularly under the frameworks of agreements like the USMCA.

The CCCME has criticized the European Union's investigation into electric vehicle imports from China, describing the process as biased and lacking transparency. Shi Yonghong, vice president of CCCME, highlighted concerns regarding the EU's selective sampling of companies for the investigation and claimed that the probe ignores the differing market segments targeted by Chinese and EU manufacturers.

He also criticized the EU for what he perceives as double standards, especially compared to the US Inflation Reduction Act, which involves substantial subsidies, contrasting with the EU's actions against Chinese EV imports.

The dispute underscores broader trade tensions and challenges in the electric vehicle sector, reflecting conflicts over market access and subsidy policies that could influence the future of global EV development and trade.

Risk Analytics

The recent 7.4-magnitude earthquake in Taiwan has rekindled concerns about the vulnerability of the global semiconductor supply chain. This chain is heavily reliant on Taiwanese foundries like TSMC, which produces over 90% of the world's advanced logic chips.

Despite no significant immediate damage, with most semiconductor firms, including TSMC, quickly resuming operations, the event underscores the ongoing risks posed by the concentration of chip production in the region, especially given the critical role these chips play in various global industries, including automotive and technology.

Volvo and ZF are taking serious steps to overcome the significant challenges they have faced in software development $, which have recently affected their operations.

ZF has restructured its approach by merging its passenger car chassis technology and active safety technology into a new Chassis Solutions division specifically aimed at improving project management and software execution.

Similarly, Volvo has faced similar issues and has delayed the launch of its EX90 to mid-2024. They also halted deliveries of the EX30 to resolve software glitches, indicating that software reliability in their vehicles is a strategic priority for them.

Volvo and ZF's proactive measures to improve their software development capabilities are critical in the transition to software-defined vehicles, which are increasingly essential in automotive innovation and customer satisfaction.

Supply Chain

Smaller Japanese companies, integral to the EV battery supply chain, face challenges scaling up to meet the surging global demand for EVs. These firms, crucial for major automakers like Toyota and Tesla, need help with investment capacity and are wary of forming alliances that could compromise their technological autonomy despite encouragement from the Japanese government to enhance competitiveness through collaboration.