Automotive Supply Chain Risk Digest #396
August 30 - September 5, 2024, by Elm Analytics
Contents
Volkswagen contemplates German factory closures
Mercedes-Benz invests $2B in China partnerships
Ford allocates $273M in EV production in Mexico
Mubea infuses $24M in Kentucky facility expansion
UAW gains recognition at Ultium battery plant
UAW secures wage increases, suppliers concerned
Volkswagen Puebla plant workers reject wage increase
MERGERS, VENTURES, ACQUISITIONS
Nippon Steel's US Steel deal faces US scrutiny
Toyota and BMW collaborate on hydrogen powertrain
Japan boosts EV battery production capacity
Focuslight acquires ams OSRAM optical component assets
Saint-Gobain sells Freeglass automotive business
GM delays $330M investment in lithium project
Toyota resumes production after safety tests, typhoon
US delays tariff decision on Chinese imports
Closing
Volkswagen is contemplating closing factories in Germany for the first time in its 87yr history, citing the need for drastic cost-cutting measures to remain competitive amid rising pressure from Asian EV manufacturers.
The company acknowledged that prior cost-saving plans, aimed at saving $11B by 2026, have fallen short. IG Metall, the union representing VW's workers, has vowed to oppose closures or job cuts.
VW's decreased demand for EVs in Europe and shrinking market share in China have intensified the pressure, as the company warns of the "extremely tense" situation that simple cost-saving measures cannot resolve.
Potential factory closures and job cuts in Germany, Volkswagen's manufacturing heartland, signal the ongoing impact of rising global competition on European automotive production.
Expanding
Mercedes-Benz is investing over $2B in China, partnering with local firms to diversify its EVs and light commercial vehicles lineup. The investment will support the production of new models tailored for the Chinese market. This investment strengthens Mercedes-Benz's position in China, the world's largest auto market while boosting its EV capabilities amid global shifts in the automotive landscape.
Ford announced a $273M investment in its Irapuato Electric Powertrain Center in Guanajuato, Mexico, to enhance EV motors and transaxles production for the fully electric Mustang Mach-E. The investment aims to further solidify its EV manufacturing capabilities after transitioning in 2021 from producing gasoline vehicle transmissions to electric vehicle components.
Germany's Mubea is investing $24.3M to expand its facility $ in Florence, Kentucky. The expansion will focus on increasing the production capacity of wire and coil springs used in automotive chassis, bodies, and powertrains.
Labor
The United Auto Workers (UAW) has secured union recognition at the Ultium Cells battery plant in Spring Hill, Tennessee, a joint venture between General Motors and LG Energy Solution.
After a majority of the plant's 1k workers signed union cards, the company agreed to recognize the UAW, following a similar unionization effort at the Ultium plant in Ohio.
This victory arrives amid broader efforts by the UAW to organize EV battery and manufacturing facilities across the South, where new EV plants are emerging.
The UAW is ensuring significant wage and benefit increases for workers at automotive supplier plants across Michigan and beyond, driven by the hardline approach inspired by UAW President Shawn Fain.
In recent negotiations, wage increases have more than doubled typical percentages, with some deals including better health and safety benefits.
While this is a victory for workers, executives at major suppliers, including Magna International and American Axle, express concerns that rising labor costs could jeopardize profitability $, reducing job opportunities and increasing automation.
Lear Corp., for instance, has started investing heavily in automation to offset labor costs and ensure long-term survival.
Unionized workers at Volkswagen's Puebla plant rejected a 10.59% wage increase proposal. Despite the company's efforts to offer a raise above inflation, 55.7% of workers voted against the agreement. Volkswagen de México expressed disappointment, emphasizing that it remains open to further negotiations, with the deadline for a potential strike now set for September 14.
Mergers, Ventures, Acquisitions
Through the Committee on Foreign Investment in the US (CFIUS), the US government has expressed concerns that Nippon Steel's $14.9B bid to acquire US Steel could jeopardize domestic steel production critical for infrastructure and national security.
CFIUS fears Nippon, a Japanese company, would reduce US Steel's capacity to petition for tariffs on foreign steel, particularly from China, which has flooded the market with cheap steel.
Despite political opposition, Nippon has pledged to invest in US facilities and maintain domestic production, proposing a national security agreement to address concerns.
The acquisition could alter the competitive dynamics of the US steel industry, potentially weakening domestic production capabilities at a time when steel is vital for infrastructure and national defense projects.
Toyota and BMW are collaborating to develop a next-generation hydrogen powertrain and expand fueling infrastructure for hydrogen fuel cell vehicles. BMW intends to introduce its first hydrogen-powered model in 2028.
In addition, Toyota, Nissan, and other Japanese companies are investing $7B to increase Japan's EV battery production capacity by 50%, aiming to reduce reliance on Chinese and South Korean suppliers.
Backed by $2.44B in government support, the initiative will boost output from 80 to 120 GWh with a target of 150 GWh by 2030.
This investment comes as Japan seeks to establish a domestic supply chain amid increasing competition from foreign brands like China's BYD, which has rapidly expanded its EV presence in Japan.
The push for local battery production is critical for Japan's automotive industry as it seeks to catch up in the global EV market and reduce its dependency on foreign battery suppliers.
Focuslight Technologies has acquired optical component assets from ams OSRAM AG, including its facilities in Singapore and Switzerland. The company expects to enhance its capabilities in the automotive sector, particularly in producing advanced optics for automotive projection and lighting systems.
Saint-Gobain has sold its automotive plastic components business (pdf), Freeglass, to HF Opportunities. The Schwaikheim, Germany, location has been making plastic polymer components since 1998. The sale aligns with Saint-Gobain's strategic plan for business profile optimization.
General Motors and Lithium Americas have agreed to delay GM's second investment tranche of $330M for the Thacker Pass lithium project in Nevada until December 2024.
The investment is part of GM's total $650 million commitment to the project, which aims to produce enough lithium for 1 million electric vehicles annually.
The delay comes as Lithium Americas explores alternative deal structures and awaits the successful execution of a $2.26B loan from the US Energy Department.
The outcome of the November US presidential election could impact the investment's future, which introduces uncertainty regarding support for EV initiatives.
In addition to the delay, potential political uncertainties could disrupt critical lithium supply chains for EV production, directly affecting GM's efforts to secure essential battery materials.
Production Increase
Toyota has resumed operations at all 14 of its factories in Japan after temporarily shutting them down last week due to Typhoon Shanshan.
Mazda also restarted two facilities in Hiroshima and Yamaguchi prefectures after production was halted due to the storm.
In addition to weather-related disruptions, Toyota had previously stopped production of the Yaris Cross, Corolla Fielder, and Corolla Axio models in June due to safety test irregularities.
Following corrective measures and a report to Japan's transport ministry, production of these models has now resumed at factories in Miyagi and Iwate prefectures.
Regulation
The Biden administration has delayed its final decision on significant US tariff hikes on Chinese-made EVs, batteries, semiconductors, and solar cells, initially set to take effect on August 1.
The US Trade Representative (USTR) said it needs additional time to finalize the decision after reviewing public comments.
The tariffs, part of the 2018-2019 Section 301 investigation, could impose duties up to 100% on EVs and 50% on semiconductors.
Automakers like Ford have urged USTR to reconsider these tariffs, especially for critical materials like graphite in EV batteries.
The outcome of the tariff decision will impact U.S.-China trade relations and supply chains, particularly for EV battery production.
