Automotive Supply Chain Risk Digest #392
August 2 - 8, 2024, by Elm Analytics
Contents
Evergrande's EV units face bankruptcy, complicating potential sale
Adient reports 69% drop in Q3 net income
Infineon CEO warns of distant EV demand recovery
Magna lowers sales forecast due to reduced EV production plans
FERSA expands with new production lines in China and India
Bridgewater Interiors to lay off 63 employees in Detroit
Half of vehicles sold in China are NEVs
Automotive suppliers face stranded capital and other challenges
MERGERS, VENTURES, ACQUISITIONS
Continental considers spinning off Automotive group sector
EuroGroup Laminations acquires stake in India's Kumar Precision Stampings
Indonesia's BTR New Material Group inaugurates anode material plant
MG Motor to build manufacturing plant and R&D center in Mexico
JLR faces production constraints due to aluminum shortage
US adds five more Chinese companies to UFLPA Entity List
US Commerce Department proposes banning Chinese software in autonomous vehicles
Bankruptcy
The electric vehicle arm of the embattled Chinese property developer Evergrande is facing bankruptcy and reorganization proceedings for its mainland units, which could pose a challenge to its potential sale.
Evergrande's liquidators are seeking billions of dollars from several of the property developer's executives while also aiming to recover dividends and remuneration paid to the founders.
The ongoing legal proceedings and the uncertainty surrounding the recovery of assets indicate the complexities involved in the restructuring process of Evergrande and its affiliated companies.
Earning Dip
Adient, a global seating supplier, reported a 69% drop in net income $ to $29 million and an 8% decline in revenue to $3.7 billion for its fiscal Q3, driven by weak demand and inventory issues in Europe. The company's adjusted earnings margin in Europe, the Middle East, and Africa fell sharply to 1.9% from 7.2%.
Despite these challenges, Adient is focusing on growth opportunities in Asia, particularly China, where it secured new business deals and saw a 6% sales increase. In the Americas, adjusted earnings rose 4% despite delays in key program launches.
German chipmaker Infineon Technologies' CEO Jochen Hanebeck reported disappointing Q3 sales and warned that a recovery from the current slump in EV demand is still distant.
The company, heavily dependent on the automotive sector, has been affected by the broader industry's pullback from EVs.
Infineon announced plans to cut 1.4k jobs as part of a structural improvement program that includes closing two smaller Asian manufacturing sites.
Magna International lowered its sales forecast due to weaker demand and scaled-back production plans for EVs by several major automakers.
CEO Swamy Kotagiri announced that the Aurora, Ontario-based parts supplier expects a reduction in sales by about $4B by 2026, prompting the company to cut investments and restructure operations across more than 40 divisions.
The revised sales outlook now ranges between $44B and $46.5B, down from the previous forecast of over $50B. This adjustment tracks decisions by customers like Ford, General Motors, and Tesla to delay or cancel EV projects.
Expanding
Span's FERSA, which produces bearings and electromechanical components, is expanding by opening new production lines in China and India. By the end of the year, the company will also launch a new manufacturing plant in Jiaxing, China, doubling its capacity to 323k sq ft.
Human Capital
Bridgewater Interiors will lay off 63 employees $ at its Detroit seating plant by the end of September. This is a direct consequence of Stellantis' decision to end production of the Ram 1500 Classic, a popular truck model produced at Warren Truck Assembly, where Stellantis also recently announced temporary layoffs of 1.6k workers.
Industry Directions
The automotive supply industry faces significant challenges in 2024, as discussed at the CAR Management Briefing Seminars in Traverse City, Michigan.
Suppliers are concerned about "stranded capital” $ from investments in EV production that may go underutilized due to slower-than-expected market growth.
Economic pressures, including high interest rates and tight labor markets, have further strained suppliers, who also face increased debt burdens since the COVID-19 pandemic.
GM President Mark Reuss acknowledged these difficulties, emphasizing the importance of solid relationships with suppliers and promising support amid the uncertain EV landscape.
Despite this, many suppliers remain anxious about the market's unpredictability and the potential impact of the upcoming US presidential election on EV policies.
Sustainability was also discussed, with smaller suppliers struggling to prioritize it amidst other pressing concerns.
The industry's future success will rely on improved collaboration between automakers and suppliers to navigate these challenges.
In July, half of the vehicles sold in China were either new pure electric vehicles or plug-in hybrids, marking a significant milestone in the country's rapid adoption of NEVs.
Mergers, Ventures, Acquisitions
Continental's Executive Board is considering spinning off its Automotive group sector to create two independent companies.
If approved, the spin-off and listing would occur by the end of 2025, while the Tires and ContiTech group sectors would remain under Continental's umbrella.
EuroGroup Laminations (EGLA), which produces stators and rotors for EV motors, is acquiring a 40% stake in India's Kumar Precision Stampings, marking its entry into the Indian market.
In addition, EGLA has formed an alliance with Hixih Rubber Industry Group in China to expand its presence in the Chinese NEV sector.
This strategic move aligns with Italy's efforts to strengthen trade relations with China, as highlighted by Italian Prime Minister Giorgia Meloni during her recent visit to China.
Opening
Indonesia's President Widodo inaugurated a plant built by China's BTR New Material Group and Singapore's Stellar Investment to produce 80k tons of anode materials annually for EV batteries.
This move follows Indonesia's ambitions to develop a domestic EV industry and leverage its rich mineral resources, particularly nickel, while attracting large battery and EV manufacturers to invest in domestic production.
MG Motor, owned by China's SAIC Motor Corp, announced plans to establish a manufacturing plant and R&D center in Mexico. This strategic shift aims to produce vehicles tailored to Latin America, positioning Mexico as a hub for SAIC's regional growth.
The company did not disclose investment details or a construction timeline. This development aligns MG Motor with other EV manufacturers expanding in Mexico, such as BYD, although it did not specify intentions for the US market.
Production Decrease
Jaguar Land Rover (JLR) is facing significant production constraints due to an aluminum shortage.
This shortage is a result of flooding at JLR's key supplier Novelis' plant in Sierre, Switzerland, and additional disruptions at Constellium's facilities.
The impact of this shortage is expected to be felt through the end of the year, particularly affecting models like the Range Rover and Range Rover Sport.
JLR's CFO, Richard Molyneux, has emphasized its commitment to finding alternative sources within the Tata ecosystem, ensuring they meet their EBIT targets despite the disruption.
It's worth noting that other automakers, including Porsche, BMW, Mercedes-Benz, and Audi, are also grappling with aluminum supply issues, with some predicting substantial production losses.
Regulation
The United States has expanded its ban on imports from China by adding five more companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List due to alleged human rights abuses involving Uyghurs in Xinjiang.
The targeted companies include Hong Kong-based Rare Earth Magnesium Technology Group Holdings and its parent company Century Sunshine Group Holdings, as well as Zijin Mining Group's subsidiary Xinjiang Habahe Ashele Copper Co.
This action is part of the US government's ongoing effort to eliminate goods made with forced labor from the supply chain. The Entity List now includes over 70 entities associated with various products, including automotive parts and solar panels.
China has denied the allegations, calling them a "lie" aimed at destabilizing Xinjiang and hindering China's development.
→ Entire UFLPA Entity List
The US Commerce Department is set to propose a rule that would bar the use of Chinese software in autonomous and connected vehicles with Level 3 automation and above, citing national security concerns.
This rule would effectively prohibit Chinese AVs from being tested on US roads.
It would place the onus on automakers to verify that their software is not developed by entities considered as foreign threats, particularly China.
This additional responsibility for automakers is part of the Biden administration's broader efforts to mitigate cybersecurity risks associated with connected vehicles, following concerns about Chinese companies collecting sensitive data during vehicle tests in the US.
