Automotive Supply Chain Risk Digest #377

April 19 - 25, 2024, by Elm Analytics

Expanding

Toyota has announced a plan to invest $1.4B in its Princeton, Indiana facility to support the assembly of a new three-row electric SUV.

This investment will bring Toyota's total commitment to the Indiana location to $8B. The expansion includes introducing a new battery pack assembly line utilizing lithium-ion cells from its North Carolina battery manufacturing plant.

ZF Group will invest more than $12M to expand its operations in Querétaro to produce a steer-by-wire system using steering wheel actuators.

Hyundai, recognizing the increasing demand, is expanding by adding hybrid production lines at its dedicated EV plant in Bryan County, Georgia.

Human Capital

Ford plans to add another 3k personnel to its technology hub in Chennai, India, which currently employs 12k people. The expansion aims to develop additional EV software capability to support Ford's global program.

Adient, a major seating supplier, is restructuring its European business in response to several challenges. To cut costs, the company is cutting jobs and transferring work to countries with lower labor expenses.

European automakers, as a whole, are facing soft demand, fierce competition from Chinese rivals, and higher input costs. The seating supplier's restructuring plan, which is set to be completed in 2027, is a strategic move to adapt to the changing market conditions and ensure its long-term sustainability in the European automotive industry.

Stellantis has laid off 199 full-time workers $ at its Sterling Heights Assembly Plant, which produces the Ram 1500 in suburban Detroit. On Monday, the automaker announced the job cuts as part of its continued effort to downsize its staff.

Since November, several layoffs have affected all types of workers following the contract's ratification between UAW members and Stellantis.

• In early April, Stellantis let go of 239 workers at a Detroit parts sequencing facility near its Jeep Grand Cherokee assembly plants.

• In late March, the company cut about 2 percent of its US engineering, technology, and software jobs, which affected around 400 employees.

• In March, Stellantis also laid off 341 supplemental workers at its Toledo Assembly Complex, which produces the Jeep Wrangler and Gladiator.

Labor

Volkswagen workers in Chattanooga, Tennessee, have voted to join the UAW, marking a significant milestone as it represents the first factory-wide union presence at a major foreign automaker in the Southern US.

This victory could signal a broader movement for unionization across other regional automakers, where union presence has traditionally been minimal. The outcome at VW might inspire similar union efforts at other Southern factories, including upcoming votes at Mercedes-Benz in Alabama and potential elections at Hyundai and Toyota plants. Despite potential political and corporate resistance, the UAW's success could influence broader labor relations in the South.

Litigation

A Michigan judge has denied Stellantis a preliminary injunction $ against MacLean-Fogg Component Solutions, requiring the automaker to continue paying under protest to avoid halting critical parts shipments. This decision is part of ongoing litigation involving Stellantis and at least three parts makers over pricing disputes.

Stellantis argues that stopping payments could lead to catastrophic financial consequences and plant shutdowns. However, the court dismissed these claims as speculative, emphasizing that Stellantis could avoid economic disaster by continuing to pay under protest while seeking to recover overpayments through legal channels.

Stellantis says it has addressed inflationary pressures on suppliers by offering relief "contingent upon their commitment to improving operations and reducing costs."

Collectively, the Detroit 3 automakers are trying to cut costs in their supply chains due to expensive labor contracts with the UAW and competition with Tesla and foreign automakers in the turbulent EV market.

Suppliers seek compensation from automakers after the pandemic's production and supply chain disruptions eroded income. While automakers recorded record earnings post-pandemic, parts makers bore most of the financial impact, and many have yet to recover fully.

German prosecutors fined Continental $107M for its involvement in diesel emissions fraud. The fraud included selling engine control units used by automakers like Volkswagen to manipulate emissions tests. This software contributed to vehicles emitting more nitrogen oxides than regulations allow.

The fine, which also entails the seizure of $101M in profits from these sales, follows "intensive talks" with Hanover prosecutors. However, due to previous provisions, it will not significantly impact earnings. Despite these issues, Continental has cooperated with the ongoing investigation, which continues against about 40 individuals linked to the scandal.

Mergers, Ventures, Acquisitions

SES AI, a US-based EV battery maker, has partnered with Hyundai to build and operate a test and verification line $ for their semi-solid lithium-metal batteries in Uiwang, South Korea. The battery technology is expected to offer better energy density and range than lithium-ion batteries and aims to be commercialized by 2026.

India's Remsons Industries, based in Mumbai, entered a JV with Turkey-based Daiichi Infotainment System. Additionally, the company bought a majority stake in Uni Automation's automotive sensor unit.

Opening

Honda Motor will invest $11B to build batteries and EVs in Alliston, Ontario, Canada, marking a significant strategic shift towards fully electric vehicles. This initiative will establish Alliston as an essential manufacturing hub in collaboration with several suppliers.

Set to start operations in 2028, the facility aims to produce up to 240k EVs annually. This move is part of Honda's broader strategy to convert all its vehicles to electric by 2040. It spotlights Canada's emerging role as a critical North American EV market player.

Honda plans to establish a complete supply chain system by constructing a processing plant for cathode active material and precursor in partnership with POSCO Future and a separator plant in collaboration with Asahi Kasei.

South Korea's HL Klemove inaugurated its ADAS Radar Manufacturing Unit in Chennai, India.

India's Sona Comstar has opened a new plant in Silao, Mexico, where it manufactures differential assemblies and reduction gears for EVs.

Seojin Mobility has begun construction on a new plant in Escobedo, Nuevo Leon, Mexico. The facility will specialize in producing electric motors for Hyundai's electric vehicles in the US.

Production Increase

Syrah Resources has commenced the production of active anode material at its facility in Vidalia, Louisiana. This facility processes natural graphite extracted from Syrah's Balama Graphite Operation in Mozambique.

The North American plant was constructed to overcome the recent limits on graphite exports from China. The facility has also been established to take advantage of the EV tax credits linked to the US guidelines on defining foreign businesses of concern.

Tesla has made a significant strategic change in its approach to EV production. The company has revised its plan to introduce cheaper EVs that will be produced on its existing production lines, a departure from its previously announced 'unboxed' manufacturing process.

This shift comes after conflicting reports about canceling a more affordable vehicle model, previously dubbed the '$25,000 Tesla.'

Despite canceling the expansion at Gigafactory Texas for this new vehicle, Tesla aims to increase vehicle production using current facilities to nearly 3M cars, representing over a 50% increase from 2023.

The company confirmed that its Robotaxi will still utilize the innovative 'unboxed' manufacturing method, indicating a dual strategy to cater to different market segments.

Risk Analytics

Whether Robotaxi or inexpensive EV, Tesla's decision to invest in a new vehicle plant in Santa Catarina, Nuevo Leon, Mexico, and to potentially bring some of its Shanghai-based suppliers to Mexico has highlighted the country's growing importance in the global automotive industry.

Analysis from S&P Global Mobility indicates that 23.3% of the Chinese automotive investments in Mexico since 2019 are from Tesla's known suppliers, though not all will directly supply the Santa Catarina plant. The strategic move aligns with Tesla's need to manage costs and maintain supplier relationships amidst market challenges.

Despite the focus on Tesla, Mexico's automotive sector has attracted significant foreign direct investment totaling $31.9B over the past two and a half years from 32 countries.

This investment is mainly driven by the tariff-free access to North American markets provided by the USMCA, positioning Mexico as a key player in global automotive manufacturing capacity expansion.