Automotive Supply Chain Risk Digest #393
August 9 - 15, 2024, by Elm Analytics
Just Released
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While financial ratings for leverage and profitability have remained stable, liquidity has significantly dropped across the sector: 52% of companies have seen declines since Q1 2023, with 32% now at critically low levels.
Key factors contributing to this decline include:
Delayed program launches
Increased capital expenditures
Higher debt repayments
Given these findings, it is more critical than ever for manufacturers to closely monitor their suppliers' financial health, particularly liquidity, to mitigate potential supply chain disruptions.
Contents
HiPhi's parent company files for bankruptcy
South Korea EV fires prompt stricter regulations
Dowlais Group may sell metallurgy unit
Aptiv invests $45M to expand Chennai plant
Goodyear Canada invests $460M in expansion
Stellantis to lay off 2.45k workers
MERGERS, VENTURES, ACQUISITIONS
Intel, Karma partner on vehicle architecture
Natron Energy invests $1.4B in new plant
Buick City site secures first new tenant
onsemi selects Czech town for $2B hub
Magna Steyr builds manufacturing facility in Arizona
Polestar begins US production of Polestar 3
Honda, Nissan increase use of recycled plastics
Automakers risk underutilization with EV transition
European chipmakers face increasing risks in China
Canada's rail networks face potential disruption
Bankruptcy
Human Horizons, the parent company of the luxury EV brand HiPhi, has filed for bankruptcy due to severe financial difficulties. The company halted production six months ago and is now under court supervision for a six-month reorganization period.
Despite securing a $1B funding commitment in May 2024, doubts remain about financial stability. Human Horizons' collapse highlights challenges in China's NEV sector, potentially signaling broader market instability.
Disaster
Recent fires involving EV batteries in South Korea, including a severe blaze in Incheon that destroyed 140 cars, are prompting calls for stronger safety regulations. The frequency of such fires has been increasing, raising concerns about the potential impact on the EV industry.
Experts and civic groups are urging the government to relocate charging stations out of underground parking lots and limit charging levels to reduce fire risks.
Public pressure is also mounting on automakers like Hyundai and Mercedes-Benz to provide more transparency about the batteries in their vehicles, with potential repercussions for sales if safety concerns are not addressed.
The rise in EV battery fires in South Korea could lead to stricter regulations and dampen consumer confidence, potentially slowing the growth of the EV market.
Earning Dip
Dowlais Group, the owner of GKN Automotive, is considering selling its powder metallurgy unit due to a decrease in pre-tax profit and revenue caused by volatility in battery electric vehicle production, which significantly impacted its ePowertrain product line.
The company has also implemented cost control and recovery initiatives to mitigate the impact of the decline and expects a mid-to-high single-digit adjusted revenue decline for 2024.
Expanding
Aptiv has invested $45M to expand its manufacturing facility in Oragadam, Chennai, India. The expanded plant will produce software-defined cockpit controllers for the Indian market, doubling its workforce to 230 employees. The facility, one of Aptiv's most advanced globally, will initially focus on the domestic market with plans to target exports in the future.
Goodyear Canada is investing over $460M to modernize and expand its plant in Napanee, Ontario, Canada, with the goal of achieving net-zero emissions by 2040. The investment aims to create an energy-efficient manufacturing process and boost the plant's production capacity for EV and all-terrain tires.
Human Capital
Stellantis plans to indefinitely lay off up to 2.45k workers at its Warren Truck Assembly Plant in Michigan as it ends production of the Ram 1500 "Classic" pickup truck later this year. The "Classic" model, a lower-cost option aimed at entry-level buyers and fleet customers, has been produced alongside the Jeep Wagoneer and Grand Wagoneer.
No replacement vehicle has been announced, causing concern among local governments and workers and further straining relations with the UAW. The layoffs, expected to begin in October, are part of broader cost-cutting measures under Stellantis CEO Carlos Tavares' "Dare Forward 2030" plan.
Mergers, Ventures, Acquisitions
Intel and Karma Automotive have partnered to create a software-defined vehicle architecture and plan to offer it to other automakers. The architecture replaces traditional individual control units with powerful car computers, offering improved processing power, weight savings, and more manageable over-the-air updates.
Natron Energy, a US startup focused on sodium-ion battery technology, announced a $1.4B investment to build a major manufacturing plant $ in Edgecombe County, North Carolina.
This new facility will boost Natron's production capacity by 40x, following its initial plant in Michigan. Sodium-ion batteries, which are cheaper and safer than their lithium-ion counterparts, offer an alternative that avoids supply chain issues associated with cobalt and rare earth metals.
The former Buick City site in Flint, Michigan, has secured its first new tenant: Victory Packaging, a supplier for General Motors. This is a significant step in the $300M redevelopment of the 300-acre site, which has been largely abandoned since GM's bankruptcy in 2009.
The US chipmaker onsemi has chosen the small Czech town of Roznov pod Radhostem for a $2B manufacturing hub, marking the most significant foreign investment in the Czech Republic in three decades.
The facility will produce semiconductors for electric vehicles and renewable energy, including a contract with Volkswagen Group. This expansion is vital for the local economy and Europe's efforts to reduce its dependence on imported chips.
Magna Steyr is building a manufacturing facility with nearly 230k sq ft in Mesa, Arizona.
Production Increase
Polestar has begun production of its Polestar 3 electric SUV at its Ridgeville, South Carolina plant, which marks its first manufacturing operation on American soil. The Ridgeville plant is expected to reach full capacity within two months.
Deliveries will start for US customers next month, followed by European deliveries shortly after. Additionally, Polestar plans to commence production of the Polestar 4 in South Korea by 2025. This expansion is in response to higher tariffs the US and Europe imposed on EVs imported from China.
Regulation
Honda and Nissan are stepping up their use of recycled plastics to meet new European regulations requiring 25% of a vehicle's plastic content to be recycled by 2031.
With plastic making up half of a car's volume, this shift is significant, though costly—recycled plastics can be up to three times more expensive than traditional materials. Honda is working to establish a supply chain for recycled plastic by 2040, while Nissan is considering investing in a Renault recycling unit.
Other automakers, like Toyota, Subaru, and BMW, are pushing forward with similar initiatives as the industry braces for stricter environmental standards. The new EU rules are forcing automakers to rethink their materials and supply chains, potentially raising costs but driving sustainability.
Risk Analytics
Automakers are currently grappling with a delicate balancing act as they transition towards EVs, a move that could potentially result in their assembly plants being underutilized $.
North American plants currently operate at approximately 70% capacity, but this figure could drop sharply as companies strive to balance EV and internal combustion engine production.
By 2030, some plants might be running at less than two-thirds of their potential, and this situation could worsen by 2035.
In their quest for flexibility to meet uncertain EV demand, automakers might inadvertently compromise the stability of their operations, leading to the potential for uneven production and plant closures.
European automotive chipmakers like Infineon, NXP, and STMicroelectronics increasingly rely on China, with about a third of their revenue coming from the country.
As demand for EVs surges in China, these companies benefit from the growing market, even as geopolitical tensions between the US, EU, and China intensify.
While China still depends heavily on foreign suppliers for advanced automotive chips, its concerted efforts to develop domestic capabilities present a significant long-term threat to European chipmakers.
The deepening ties between European companies and Chinese partners reflect the complex balance between immediate market opportunities and future risks, underscoring the need for strategic planning and risk management.
Supply Chain
Canada's rail system faces potential disruption as labor negotiations between the Teamsters Canada Rail Conference and major railroads, Canadian National Railway and Canadian Pacific Kansas City (CPKC), remain unresolved.
The Canada Industrial Relations Board ruled that a strike or lockout could occur as early as August 22 if no agreement is reached, following a 13-day cooling-off period.
The ongoing contract dispute, centered on wages, crew scheduling, and fatigue management, has already led to a decline in international freight business for both rail companies.
CPKC has warned that it will lock out workers if a new deal is not in place by the deadline, raising concerns about significant impacts on supply chains reliant on rail, such as automotive.
