Automotive Supply Chain Risk Digest #391
Automotive Supply Chain Risk Digest #391
July 26 - August 1, 2024, by Elm Analytics
Contents
Recaro Automotive files for bankruptcy
Ferrari thwarts deepfake scam
Toyota reports 17% profit increase in Q1-2024
Volkswagen announces cost-cutting measures
BorgWarner restructures e-products division
Detroit 3 automakers report disappointing Q2-2024 earnings
GM updates employee performance evaluation
Stellantis offers voluntary buyout program
Auto suppliers struggle with labor shortages
Chinese NEV manufacturers enter Thai market
MERGERS, VENTURES, ACQUISITIONS
Honda, Nissan, Mitsubishi expand partnership
BMW to establish five new battery assembly plants
Nissan reduces production at Kyushu plant
US and Mexico plan to fix issues at VW Puebla plant
Mid-Year Market Outlook Report identifies key industry forces
Bankruptcy
Recaro Automotive, a German seat supplier dating back to 1906, has filed for bankruptcy and been approved for self-administration by a German court. The filing's implications for the brand's future remain uncertain.
Acquired by Detroit-based Raven Acquisitions LLC in 2020, Recaro's recent financial instability contrasts with its previous annual revenue of $150M in 2019.
Employees and the IG Metall trade union, representing 215 workers at Recaro's German factory, were unaware of the bankruptcy and have demanded transparency from management.
Cyber Security
Ferrari narrowly avoided a deepfake scam $ when criminals used an AI-generated version of CEO Benedetto Vigna's voice to attempt a fraudulent acquisition scheme. The scammer convinced an executive to discuss a nonexistent acquisition with messages and a phone call using a convincing imitation of Vigna's voice.
However, the scam was thwarted when the executive asked a specific identifying question about a book recommendation that the impersonator couldn't answer.
This incident spotlights the growing use of AI for criminal activities, such as voice-cloning high-profile individuals. Experts warn that AI-based deepfake tools are expected to become increasingly sophisticated and accurate.
Earning Dip
Toyota Motor reported a 17% increase in Q1-2024 profit, reaching $8.7B, driven by cost-cutting measures and a weaker yen. The automaker's outlook is challenged by a tough market in China and the fallout from a certification scandal. Despite a 2% decline in retail sales of Toyota and Lexus vehicles, hybrids accounted for about 40% of sales. Toyota maintained its full-year profit forecast of $28.8B despite ongoing US inventory issues and recent scandals affecting its reputation.
Volkswagen announced significant cost-cutting measures, including reducing investment spending for 2025-2029 to around $181B and a $10.6B savings drive. The company aims to revive its profit margins amidst weak demand for EVs and rising costs.
BorgWarner is restructuring its e-products division $ to save $100M over the next few years, with an expected $20M-30M savings in 2024. Additionally, the company has adjusted its approach to electrification due to weaker-than-expected EV demand, reducing full-year net sales guidance by $400M and cutting anticipated R&D spending by about half.
The Detroit 3 automakers—General Motors, Ford, and Stellantis—reported disappointing Q2-2024 earnings $, reflecting challenges in managing EV plans while maintaining profits from gasoline and hybrid models.
Ford's stock plummeted 18% due to rising warranty costs, while Stellantis saw an 8% drop after a 48% decline in first-half net income.
GM's net income rose 14%, but the stock fell amid concerns of slowing growth. The companies face rising inventories, higher incentives, and vehicle affordability issues.
While Ford maintains confidence in its Ford+ business plan, Stellantis struggles with supply chain disruptions and quality issues, and GM has reduced its EV production targets and delayed new EV launches.
Human Capital
General Motors is updating its performance evaluation system for US salaried employees to focus on rewarding high performers. The new five-point rating scale ranges from 'significantly exceeds expectations' to 'does not meet expectations,' with top performers eligible for 150% bonuses. This change aims to attract and retain talent essential for GM's shift to electric vehicles.
Around 70% of employees are expected to fall into the 'achieves' category, receiving full target bonuses, while 5% may face 'appropriate action,' including possible termination. This new system aligns with industry trends and demonstrates GM's dedication to valuing and rewarding high performers. Automakers like Ford have adopted similar strategies as they adjust performance reviews to enhance shareholder value and manage costs during the EV transition.
Stellantis is offering a voluntary buyout program to its US salaried employees as part of cost-cutting measures. Approximately 11k workers may be eligible, and individualized offers will be sent out in mid-August. The company aims to achieve headcount reduction goals voluntarily but may resort to involuntary job cuts if necessary. This move is part of Stellantis' broader strategy to streamline operations.
Industry Directions
Auto suppliers struggle with labor shortages and rising costs despite the Federal Reserve's indication that the overall US labor market is balanced. Companies like Forvia are investing in automation to address these challenges, implementing automated door panel lines in Michigan and Tennessee.
However, skilled labor remains scarce, and suppliers are still raising wages, albeit slower than in previous years. The unpredictable pace of EV adoption complicates hiring plans, with suppliers needing to balance between EV and internal combustion engine parts. Automation is seen as a long-term solution, but its full benefits may take years to materialize.
Chinese NEV manufacturers, such as BYD and GAC Aion, are rapidly entering the Thai market, establishing significant operations and reshaping the local automotive industry. Once dominated by Japanese brands, Thailand is now seeing a shift as Chinese companies build factories, flood advertising spaces, and offer competitive pricing.
"The window of opportunity for Chinese new energy vehicles going overseas will be relatively short," said Ma Haiyang, general manager at Aion for Southeast Asia. Despite tariffs from the EU and US aimed at curbing Chinese EV imports, Thailand remains a strategic hub due to its proximity and trade ties with China.
Chinese EV makers' rapid and aggressive entry into Thailand highlights the shifting dynamics in the global automotive supply chain. It raises concerns over market stability due to competitive pricing.
Mergers, Ventures, Acquisitions
Honda and Nissan have signed a memorandum of understanding with Mitsubishi to expand their current partnership and speed up the development of EVs and related technologies. This collaboration aims to combine resources, reduce costs, and expedite the introduction of advanced EVs to the market.
This partnership follows Honda's termination of a joint venture with General Motors and its recent collaboration with Nissan. Both Nissan and Mitsubishi are facing challenges in the US market, with Nissan's operating profits declining and neither company having successfully introduced long-range EVs. The three companies will also prioritize the development of a software-defined vehicle and work on batteries, electric motors, and related technologies.
Opening
BMW is establishing five new assembly plants on three continents to produce its sixth-generation high-voltage batteries, following a "local for local" approach to ensure uninterrupted production amidst potential political or economic disruptions.
Production Decrease
Nissan has reduced production at its Kyushu plant in Japan by a third and halved output of the Rogue crossover due to sluggish demand for older models in the US.
The automaker's Q1 profit took a hit, leading to a slashed full-year outlook after offering substantial discounts in the US. Nissan aims to launch 30 new models in the next three years, including 16 EVs, to adapt to market shifts and regain momentum.
With a global inventory of 640k vehicles, the highest in over four years, Nissan faces challenges maintaining its market position, especially as its market share in China shrinks.
Regulation
The governments of the US and Mexico have agreed on a plan to fix issues at Volkswagen's Puebla plant, following a request under the USMCA's Rapid Response Labor Mechanism. The plan protects workers' rights to form unions and bargain collectively. It includes reinstating eight unfairly fired workers and ensuring the company doesn't interfere with union activities. The Mexican government will provide training and check regularly to ensure the plan is followed by August 9, 2024. The Puebla plant is VW's biggest in Mexico, with over 11k workers and many of its cars sold in the US.
Risk Analytics
Dave Cantin Group and Kaiser Associates released their Mid-Year Release Market Outlook Report earlier this week. The report identifies seven fundamental forces impacting the industry, such as the rise of EVs with notable winners (Rivian) and losers (Fisker), active M&A trends, and challenges in supply chain management.
Supply chains have remained resilient despite potential disruptions, with inventory levels expected to reach pre-2019 levels by year-end.
High-profile OEM bankruptcies and production challenges have influenced EV market dynamics, and traditional manufacturers are increasingly adopting a 'buy rather than build' strategy for new technologies.
Political and regulatory shifts, including Supreme Court decisions and the 2024 US presidential election, are expected to significantly impact the industry.
However, while showing resilience, the macroeconomic environment has challenges, particularly with high interest rates posing a significant hurdle.
- Understand requirements (especially at senior management level)
- Sensible APQP / PPAP timing and evidence (based on perspective of the technology rather than percetion)
- D-FMEA & P-FMEA (no exceptions)
- Process Capability (an elemental cost saver)
- Customer issue bidirectional traceability (because the a above was done properly)
It has been a good few years since I worked directly for an OEM so I have to confess this comment is more perception than perspective, from an OEM point of view. It seems to me, based on my current and near past experiences in various segments of the automotive supply chain delivering to OEMs, some basic mastery of simple 'Automotive' concepts are sadly lacking. Which in turn appear, to me at least, to be an underlying theme to a good number of the issues reported in the automotive industry.
It seems as though the EE disciplines of System, SW, HW, etc have been allowed to divorce themselves from the requirements of APQP / PPAP within a sensible timeframe. Which leads to misunderstood risk proritisation and management. Which allows variability product to product. Which enforces late and delayed product launches. Which indicates poor product performance with real-world customers. Which begets the perception for real world customers they need to wait for vehicles that actually deliver what they want or need. Which drives down sales.
But then, maybe I'm wrong?