Automotive Supply Chain Risk Digest #380
May 10 - 16, 2024, by Elm Analytics
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Discover key insights, including a notable decline in profitability, a doubling of manufacturers with low liquidity driver scores, and significant impacts on overall supplier financial health.
This report covers global automotive suppliers and is essential for understanding fiscal stability, managing risk, and seizing opportunities.
Contents
Sherry House appointed Ford's CFO
Stefan Richmann to lead MINI
Stable schedules, mixed earnings
Tesla expands Berlin factory
MERGERS, VENTURES, ACQUISITIONS
Subaru and Toyota continue partnership
BYD postpones Chile lithium plant
Honda doubles EV investment
Mercedes halts new EV platform
Lemtech invests in Mexico
Ford plans new SUV production
Xiaomi boosts production capacity
Platinum deficit deepens in 2024
US raises tariffs on Chinese EVs
Concerns over tariff circumvention
Foley on Mexico tariff impact
Ford urges suppliers to cut costs
Change In Management
Sherry House has been appointed as Ford's new VP of finance, starting June 3, 2024, with plans to transition into the role of chief financial officer in early 2025. Current CFO John Lawler will become vice chair, focusing on strategic development and global partnerships.
The BMW Group has announced that Stefan Richmann will take over as head of the MINI brand effective August 1, 2024, succeeding Stefanie Wurst, who has led the brand since February 2022.
Earning Dip
Stable vehicle assembly schedules led to higher Q1-2024 revenues for many North American suppliers. However, increased sales did not always result in higher earnings $ due to labor costs and challenges related to the EV transition.
Lear and Magna both reported increased sales but faced reduced net income.
Dana saw a drop in net income due to a business sale despite revenue growth.
Cooper-Standard improved its net loss significantly from $130.4M to $31.7M.
American Axle & Manufacturing and Visteon reported net income gains.
Suppliers like BorgWarner are investing in EV technology, with new deals in China and Europe, while others like Aptiv are reducing investments in fully automated vehicles.
Magna faces revenue declines due to halted production of Fisker's Ocean EV, leading to job cuts in Europe, joining Continental in workforce reductions.
Continental plans over 7k job cuts as it attempts to turn around its automotive unit after a significant loss.
Expanding
Despite protests, Tesla has received approval from the local council in Gruenheide, Germany, to expand its factory near Berlin. The expansion aims to double the site's capacity to 100 GWH of battery production and 1M cars per year, positioning Tesla to dominate Europe's EV market. The plan must still clear environmental approvals and has faced opposition due to concerns about the region's water supply.
Mergers, Ventures, Acquisitions
Honda has announced its strategic plan to double its investment in electric vehicles to $65B by 2030. The company plans to reduce costs and introduce seven new electric models to take advantage of the expected surge in the popularity of electric vehicles in the latter half of the 2020s.
Additionally, Honda's joint venture plant with LG Energy Solution will start production of batteries with a capacity of up to 40 GWh annually. In the latter part of the decade,
Honda intends to expand its battery business further by establishing a vertically integrated supply chain. This will involve in-house production with GS Yuasa for EV batteries and securing battery materials in Canada.
Honda aims for EVs and fuel-cell electric vehicles to make up 40% of global auto sales by 2030 and reach 100% by 2040. Despite being behind in the EV transition, Honda's significant investment aims to turn the tide and compete with industry leaders.
Subaru will continue its partnership with Toyota to develop three more electric crossovers, which Toyota will build in the US. Subaru CEO Atsushi Osaki emphasized the risks of going it alone in the uncertain EV market and highlighted the benefits of joint development. Subaru will not build EVs in its own US Plants but will produce new hybrid models of the Crosstrek and Forester in Indiana.
Mercedes-Benz has reportedly halted the development of its new MB.EA Large platform, which was intended for the next-generation EQE and EQS models, due to slow sales of these vehicles.
The decision is expected to save the company an estimated $4.3B to $6.5B. Mercedes plans to enhance its existing EVA2 platform and will continue to develop other platforms, including the MB.EA Medium, MMA, MB.AMG, and MB.VAN.
BYD has postponed its plans to produce lithium cathodes for EV batteries in Chile by 2025, citing project uncertainties. The plant, expected to be a $290M investment producing 50k metric tons of lithium iron phosphate cathodes annually, is now delayed indefinitely. Chile's economic development agency, CORFO, is seeking more information from BYD regarding the postponement.
Opening
Lemtech, a Taiwanese Tier 2 manufacturer, is investing $7M to start operations in Pedro Escobedo, Querétaro, Mexico. The company also plans to invest another $3M to expand its metal stamping capacity. The company specializes in tool design, manufacturing, stamping, welding, molding, and assembly processes.
Production Increase
Ford plans to begin production of a new multi-energy SUV at its plant in Valencia, Spain, beginning in 2027. The automaker aims to produce 300k units annually, securing the plant's future workload. Currently, the Valencia plant, which employs 4.8k people, assembles the Kuga SUV but has reduced the output of other models in recent years.
Xiaomi will start a second production shift at its Beijing plant in June, boosting its monthly production capacity to nearly 20k vehicles. The second phase of the Beijing plant will begin construction later in 2024, adding 150k units of annual production capacity by 2025, aiming for a total capacity of 300k units annually.
Raw Material Disruption
According to the World Platinum Investment Council, the global platinum deficit in 2024 is expected to reach 476k troy ounces, deeper than initially projected, due to reduced supply from mines in South Africa and Russia.
Despite a 5% decline in demand, the deficit persists, with automotive sector demand rising slightly due to increased hybrid vehicle production and stricter emissions legislation.
Regulation
US President Biden has announced a significant tariff increase on Chinese EVs, raising the tariff from 25% to 100%. This decision is intended to protect the American automotive industry from what is seen as unfairly subsidized Chinese competition and significantly boost domestic EV production.
The increased tariffs will apply to approximately $18 billion worth of annual imports from China and are part of a broader strategy to strengthen the American clean energy and semiconductor industries.
There are concerns that the new tariffs may accelerate the shift of Chinese production to Mexico and Vietnam to bypass them. Without strong measures to prevent transshipment, underpriced Chinese goods could still enter the US market through these countries.
Mexico has overtaken China as the top source of US imports, and US officials are concerned that the country could become a transshipment hub for Chinese goods to skirt US tariffs. This is evident with increasing US imports of steel products from Mexico and plans for Chinese EV maker BYD to establish a factory in Mexico that could supply the US market.
US Trade Representative Katherine Tai has expressed concerns about Mexico's trade relationship with China, emphasizing that the USMCA was designed to promote North American integration and competitiveness. Discussions are ongoing with Mexican officials to address these issues and ensure compliance with the trade agreement.
Risk Analytics
Foley & Lardner: What Every Multinational Company Should Know About ...Tariff Increases in Mexico and Their Potential Impact on Your Supply Chain
Supply Chain
Ford has issued a "call to action" to suppliers, urging them to propose ideas for reducing costs in its electric vehicle production. This request comes as the automaker anticipates a $5.5B loss in its EV unit this year.
The memo, sent by Chief Supply Chain Officer Liz Door, emphasizes the need for cost efficiency across the company's EV models.
Suppliers, already struggling with lower volumes and production delays, are being asked to revisit and suggest cost-saving measures $, even those previously rejected.
At a recent town hall-style event, the company reportedly urged suppliers to cut spending and pass the savings up the chain to help mitigate the financial strain on the EV business.
While large suppliers like Magna can absorb the EV losses due to stable revenue from other operations, smaller suppliers are fighting for survival amid the volatile EV market.
Ford's strategy of applying pressure on its supply base is not unique; Stellantis is also implementing cost-cutting measures and has even sued some suppliers to enforce price reductions. GM is similarly focused on reducing costs in its EV transition but has reportedly been easier to negotiate with than its Detroit counterparts.
The financial strain on suppliers and Ford's significant losses in the EV sector mark the challenges in the transition to electrification, impacting the stability and future of the automotive supply chain.
Charts
