Automotive Supply Chain Risk Digest #397
Automotive Supply Chain Risk Digest #397
September 6 - 12, 2024, by Elm Analytics
Contents
Cybersecurity primer for Industry 4.0
Stellantis invests $400M in Michigan plants
Denso launches hyper-automated, workerless factory concept
Early talks start at Volkswagen
Longshoremen's union strike mobilization plan announced
MERGERS, VENTURES, ACQUISITIONS
GM and Hyundai partner on vehicle development
Magna unlikely to build North American plant
Nissan cuts Rogue, Frontier production
Northvolt restructures, cuts jobs in Europe
XPeng ramps up production for high-demand EV
CATL suspends lithium production due to oversupply
China warns automakers against foreign investments
Toyota gets approval for next-gen battery production
North American auto industry faces overcapacity issues
Flexible EV supply contracts protect suppliers
Honda cuts jobs, halts China production at three plants
Cyber Security
Foley & Lardner's primer: Cybersecurity in the Age of Industry 4.0
Expanding
Stellantis is investing over $400M to retool three Michigan facilities to produce both electric and gas-powered versions of Ram trucks and Jeep Wagoneers on the same assembly lines.
The Sterling Heights Assembly Plant will be the first to produce a fully electric vehicle, the Ram 1500 REV, alongside gas-powered models.
The Warren Truck Assembly Plant will support the production of the electric Jeep Wagoneer.
At the same time, the Dundee Engine Plant will be retooled to manufacture components for Stellantis' STLA Frame architecture, which is used in multiple EV models.
These upgrades align with Stellantis' "multi-energy strategy" to streamline EV and traditional vehicle production.
Industry Directions
Denso, Toyota's top supplier, is launching a new factory concept featuring hyper-automation and no workers on the factory floor $.
The $483M plant in Japan, set to open by 2028, will produce advanced onboard computers for vehicles, consolidating multiple control functions into centralized electronic control units. The factory will operate 24/7, with automation handling all processes, from material unloading to product packaging.
This shift aligns with Toyota's broader push towards software-defined electric vehicles, aiming to enhance manufacturing efficiency, reduce vehicle weight, and lower costs through automation and modular production techniques.
Labor
The early start of negotiations between Volkswagen and the IG Metall union, set for September 25, could significantly impact the German automotive industry. This move, a month ahead of the original schedule, comes in the wake of increased labor and energy costs and heightened competition.
Volkswagen's decision to discontinue a longstanding job security agreement at six German plants has raised concerns about potential factory closures in Germany. The upcoming talks are expected to be extensive, with the works council identifying 'extensive terminations' and upcoming investment planning as crucial issues. IG Metall has warned that potential strikes could begin as early as November if job security is not ensured.
The International Longshoremen's Association has announced a strike mobilization plan if an agreement with the United States Maritime Alliance is not reached by the September 30 expiration of the current contract.
A walkout could disrupt manufacturing operations that rely on timely cargo movements. Manufacturing associations have urged both parties to resume negotiations to avoid disruption to port operations and cargo fluidity.
Mergers, Ventures, Acquisitions
General Motors and Hyundai have announced plans to collaborate on developing new vehicles, supply chains, and technologies, including internal combustion, electric, and hydrogen-powered models. This partnership aims to reduce costs and speed up the production of competitive vehicles. However, specific details on projects or timelines are still unclear.
Both automakers have invested heavily in EVs but face high costs and limited charging infrastructure. The companies have signed a nonbinding agreement and will start exploring cooperation immediately, capitalizing on their respective strengths in the industry.
Magna International is unlikely to establish a North American vehicle assembly plant $ due to market uncertainty, excess capacity, and slow EV sales growth, according to CEO Swamy Kotagiri.
The company has adopted a more cautious approach to its contract manufacturing business, especially after EV startup Fisker's bankruptcy led to the end of Fisker Ocean production at Magna's Austria plant and a $400M revenue loss.
Magna plans to be more selective with contract terms, focusing on long-term stability for future projects.
Production Decrease
Due to oversupply, Nissan is cutting production $ of its Rogue crossover and Frontier pickup by up to 40k vehicles in September and October. The Rogue alone accounted for 31% of Nissan's U.S. sales in the first half of 2024.
Despite previous efforts to reduce inventory with higher incentives, Nissan still faces excess supply. Production at the Smyrna, TN, and Canton, MS, plants will be reduced, with the Rogue line shifting to a four-day workweek and the Frontier production trimmed through March 2025.
Swedish battery manufacturer Northvolt announced it will cut jobs, merge operations, and seek partnerships as it restructures in response to declining demand for EVs in Europe and increased competition from Chinese manufacturers.
The company will pause production of cathode materials at its Skelleftea factory, focusing on its gigafactory instead while maintaining plans for factories in Germany and Canada.
Northvolt, seen as Europe's leading competitor to Chinese battery makers, has struggled with financial losses, market challenges, and losing a key contract with BMW earlier this year.
Production Increase
XPeng is urging its suppliers to increase production capacity and streamline deliveries after seeing overwhelming demand for its new MONA M03 EV. The competitively priced model ($16.8k) is averaging over 2k orders per day, totaling more than 54k in just two weeks. The automaker is adjusting its schedule to reduce delivery wait times as production ramps up for this high-demand model.
Raw Material Costs
CATL has suspended lithium production at its Yichun facility in Jiangxi, China, in response to plummeting lithium prices caused by overcapacity in the market. This suspension is expected to reduce China's monthly lithium carbonate production by 8%, helping to stabilize supply and demand.
The cost of lithium carbonate production at CATL's facility exceeded the current market prices, leading to losses that prompted the halt. This move could trigger an increase in lithium prices, helping to balance the commodity's cost structure within the supply chain.
Regulation
As geopolitical tensions grow, China's commerce ministry has cautioned domestic carmakers against making auto-related investments in foreign markets, particularly India, Russia, and Turkey. At a July meeting, Chinese carmakers were warned against investing in India due to strained diplomatic relations and were advised to be cautious about expanding into Russia and Turkey.
The ministry encouraged the use of overseas factories to assemble vehicles with components exported from China, aiming to mitigate risks. Chinese automakers are dealing with overcapacity at home, prompting them to seek global expansion amidst tough domestic competition and price battles.
Toyota has received approval from Japan's Ministry of Trade and Industry (METI) to develop and produce next-generation EV batteries, including all-solid-state batteries, at several subsidiaries. Toyota will work with its affiliates, such as Prime Planet Energy Solution and Primeearth EV Energy, to transition from hybrid to all-electric battery production. Regulatory approval from METI enables Toyota to advance its battery technology and production capabilities, which is crucial for Japan's strategy to strengthen its domestic EV supply chain and reduce dependence on foreign battery manufacturers.
Risk Analytics
During the last decade, the North American auto industry focused less on capacity utilization due to strong demand and robust production volumes. From 2016 to 2019, averaging 17M units annually, concerns about underutilizing capacity were minimal.
However, the pandemic, chip shortages, inflation, and other supply disruptions at the start of this decade pushed capacity utilization issues to the background. Recent labor agreements from UAW and Unifor, which prevent facility closures, have brought these concerns back into focus, especially as the industry integrates BEVs and hybrids into plants built for ICE. Many OEMs already converted ICE plants to BEV-focused operations, but delayed consumer adoption of BEVs complicates these efforts.
Adding to the challenge, new plants from OEMs like Ford, Tesla, and VW, combined with pent-up demand from previous years, could drive excess capacity. Tariffs on China-sourced vehicles and reciprocal tariffs further restrict volume. S&P Global Mobility predicts that capacity utilization may drop to 65% by the decade's end.
The industry's challenges could trigger factory closures once labor contracts expire in 2027-28, especially for OEMs facing intense competition from Chinese automakers.
Suppliers are also at risk, as lower OEM utilization often means overcapacity for their supply base. Ultimately, the industry faces a complex reckoning that will significantly impact profitability, competition, and long-term sustainability.
Due to lower-than-expected production volumes, the shift to EVs has led to more flexible supply contracts $ between automakers and parts suppliers.
Suppliers, who invested heavily in EV programs, have struggled with stranded capital, pushing them to negotiate new terms to recover costs if volumes fall short. While automakers still avoid volume guarantees, larger suppliers with leverage are securing concessions, such as capital recovery agreements.
Companies like Lear Corp and Magna International are reevaluating EV contracts to avoid overcommitting capital. These adjustments have become necessary as suppliers seek protection against unpredictable EV demand, a trend gaining attention from industry executives and investment analysts.
Shutdown
Honda is cutting over 2k jobs and pausing production at three assembly plants in China as it struggles with declining sales and fierce competition in the rapidly shifting EV market. The production halt, which began on August 26 and lasted about two weeks, is aimed at reducing inventory while the company transitions towards electric vehicles.
Honda's China sales fell 21% in the first half of 2024, prompting the automaker to scale back gasoline vehicle production. The shift follows a broader industry trend in China, where demand for internal combustion vehicles is decreasing as EV and hybrid sales rise.
