🎉 Automotive Supply Chain Risk Digest #400
September 27 - October 3, 2024, by Elm Analytics
Dear Reader,
Reaching the 400th issue of the Automotive Supply Chain Risk Digest is a milestone that fills us with gratitude and pride. Your steadfast support over the years has been the driving force behind our journey, allowing us to dive deep into the intricacies of supply chain resilience and share insights that make a difference.
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Nick Gaydos
Editor, Automotive Supply Chain Risk Digest
Contents
BANKRUPTCY
Ineos halts production due to supplier insolvency
CYBER SECURITY
Automotive manufacturers increasingly vulnerable to cyberattacks
Kia vulnerability exposed millions of vehicles to remote attacks
DISASTER
Linamar facilities in North Carolina suffer severe damage
Hurricane halts North Carolina high-purity quartz mines
Fire at CATL plant impacts Tesla battery supply
EARNING DIP
Forvia lowers 2024 sales and profitability guidance
HUMAN CAPITAL
Schaeffler plans job cuts after Vitesco merger
LABOR DISPUTE
East and Gulf Coast port strike suspended
Dockworkers strike disrupts automotive and rubber industries
OPENING
ILJIN announces new aluminum forging facility in Alabama
PRODUCTION DECREASE
Toyota delays US EV production to 2026
REGULATION
EU imposes up to 45% tariffs on Chinese EV imports
SHUTDOWN
Stellantis extends Fiat 500e production halt
Bankruptcy
Ineos Automotive's production halt last week was caused by the financial struggles of its German seat supplier, Recaro Automotive, which filed for insolvency.
The event led to the production shutdown for the Grenadier SUV and Quartermaster pickup at the factory in Hambach, France.
Ineos is actively seeking a new supplier for the component and is working to resolve the issue so that production can resume as soon as possible.
Cyber Security
Manufacturers, including those in the automotive supply chain, are increasingly at risk of cyberattacks, a threat that could lead to significant financial losses. The complexity of their operations and the high costs often result in underfunded cybersecurity, making them prime targets.
Smaller automotive suppliers, operating on tight margins, are particularly vulnerable, increasing the likelihood of them paying a ransom quickly to restore operations. The recent cyberattack on CDK Global, which cost dealerships over $1B, serves as a stark reminder of the potential damage. Experts stress the importance of top-down cybersecurity practices, with leaders like Mike Stone emphasizing the need for proactive planning and staff training.
According to IBM, the manufacturing sector accounted for 26% of all cyberattacks in 2023, with ransomware making up 71% of those incidents. The automotive supply chain's susceptibility to cyberattacks poses significant risks, threatening production continuity and financial stability for manufacturers and their partners.
For example, a recent report by a group of security researchers revealed the extent of a critical vulnerability in Kia's dealer portal and its connection to vehicle owner apps, putting millions of Kia vehicles at risk of remote attacks.
The flaw, affecting nearly all Kia models produced after 2013, could have allowed hackers to remotely unlock doors, start engines, and access personal owner data, including email and physical addresses, within about 30 seconds. The report highlighted the potential for hackers to take complete control of vehicle functions and even override owner logins. Kia was notified of the flaw in June, and a fix was implemented by mid-August.
The report underlines severe cybersecurity vulnerabilities in connected vehicle systems. It shows how quickly hackers could exploit flaws to control vehicle functions and compromise owner data, emphasizing the need for more robust digital defenses.
Disaster
Canada's Linamar Corp is struggling with significant damage from the aftermath of Hurricane Helene at its Asheville and Mills River facilities in North Carolina. Floodwaters have damaged plant infrastructure, leading to roof collapses, machine shutdowns, and disrupted production of critical transmission and drivetrain components.
Power has been restored to the Asheville site, but Mills River remains offline. Linamar's inability to deliver parts has impacted supply to major North American and European automakers.
Additionally, only about 50-60% of Linamar's employees in the area are currently reachable, with around 30-40 employees losing their homes due to landslides. The company expects operational disruptions for several weeks as the situation stabilizes and support for affected workers is mobilized.
Hurricane Helene's devastation in North Carolina also halted operations at two mines in Spruce Pine, which produce around 80-90% of the world's high-purity quartz, a crucial material for semiconductor manufacturing.
The halt in production threatens to impact automotive supply chains, as semiconductor chips are critical for modern vehicle systems. The shutdown could lead to a shortage of chips, echoing the 2021 crisis that caused severe automotive production slowdowns and increased vehicle prices.
The current flooding and infrastructure damage, including road blockages and power outages, exacerbate challenges in restoring operations quickly, which could prolong the disruption to the chip supply, affecting car manufacturers' production schedules.
A fire broke out at CATL's Z plant in Ningde, Fujian province, on September 29, affecting a key supplier of batteries to Tesla and other automakers in China. The fire was quickly contained, and no casualties were reported.
CATL, the world's largest EV battery manufacturer, stated that the overall impact on production is expected to be minimal. However, the extent of delays in battery supply remains uncertain as the investigation continues.
The affected facility is a significant hub, supplying batteries critical to the automotive supply chain, particularly for Tesla's Chinese production operations.
Earning Dip
French car-parts supplier Forvia lowered its sales and profitability guidance for 2024, citing market uncertainty in Europe and high car inventories in North America as factors weighing vehicle production. The company now forecasts sales between $30B and $30.5B, down from the previous range of $30.8B to $31.9B, and has reduced its operating margin target to between 5% and 5.3%.
Forvia also warned of continued challenges in 2025 due to weak demand for electric vehicles and potential plant shutdowns by automakers such as Volkswagen. The company aims for further savings from Hella, improved relationships with Chinese customers, and plans to cut up to 10,000 jobs in Europe by 2028 to address these challenges.
Forvia's revised guidance underscores the ripple effects of stalling EV demand and production cuts, highlighting the pressure on automotive suppliers as carmakers adjust to fluctuating markets and evolving powertrain demands.
Human Capital
After merging with Vitesco, Schaeffler plans to reduce jobs, according to CEO Klaus Rosenfeld. The exact number of job cuts has yet to be determined, but Rosenfeld stated that it will not be a five-digit figure. The merger is intended to strengthen Schaeffler's electric vehicle product offerings, but the company anticipates challenges in the Chinese market.
Labor
The International Longshoremen's Association has agreed to suspend the strike at major East and Gulf Coast ports following an offer of a 62% wage increase over a 6-year contract.
The White House intervened, encouraging both sides to reach a deal, although the issue of port automation has not been resolved. In the meantime, union members are returning to work with the existing contract extended until January 15.
On October 1, over 45k dockworkers went on strike at 14 major ports from New Jersey to Texas after contract talks between the International Longshoremen's Association and the US Maritime Alliance failed.
Though the strike has ended, its effects continue to reverberate through the automotive and rubber industries.
Whitney Luckett, President of Simko North America, had warned that "every day the strike goes on, you can lose five to seven days of productivity," and those delays have strained supply chains.
Gulf Coast ports, used increasingly to bypass congested West Coast routes, experienced disruptions impacting imports from Europe, South America, and parts of Asia.
Elm Analytics' own Sig Huber and Tor Hough discussed that more prominent players in the automotive sector took preemptive actions to mitigate the strike.
"Automotive is one of the industries that is going to be most impacted. I think that at the OEM level they have been planning for a strike for a while and they have pulled ahead shipments from overseas and made some alternative arrangements."
- Sig Huber, Chief Commercial Officer at Elm Analytics
However, small suppliers are likely still struggling due to liquidity issues.
"This is a really bad time for something like this to occur. We talk in terms of measuring the resilience of automotive suppliers and we've been through a period where the volumes being manufactured by the OEMs at the bottom of the supply chain have been variable or inconsistent.
So, as we monitor the financial health of the suppliers upstream from them, what we are seeing in data today is that the liquidity of the smaller companies is falling off and this kind of thing isn't going to do anything but make that worse."
- Tor Hough, CEO at Elm Analytics
Opening
ILJIN announced a $100M investment in a new facility in Auburn, Alabama, which will employ approximately 160 people. This new plant will enable ILJIN to expand into aluminum forging, specifically producing forged aluminum control arms for US automakers. The raw forged components will be further processed at ILJIN's existing Greer, South Carolina facility. The facility is intended to bolster US-made content in ILJIN's products, enhancing its competitiveness in the North American market.
Production Decrease
Toyota has decided to push back the start of its electric vehicle production in the US from 2025 to 2026 to ensure that the vehicles meet high quality standards.
Initially, the plan was to start producing three-row electric SUVs at its Kentucky plant in 2025, but that has been delayed. Toyota also adjusted its global EV production target for 2026 due to slower-than-expected demand for electric vehicles.
This reduction by 30% to around 1M units aligns with other car manufacturers changing their plans due to the high costs, interest rates, and the lack of sufficient charging infrastructure. Toyota's renewed emphasis on quality comes after recent issues related to vehicle certification misconduct within the company.
Regulation
The European Commission has received sufficient support from EU members to impose up to 45% tariffs on Chinese electric vehicle imports following a year-long anti-subsidy investigation. The tariffs, intended to counter perceived unfair Chinese subsidies, will apply for the next five years.
However, the EU is open to further negotiations with Beijing. Germany, a critical car-producing nation, voted against the measure, with BMW CEO Oliver Zipse calling it "a fatal signal for the European automotive industry." Volkswagen also opposed the move, expressing concerns about potential trade conflicts. The EU's decision is seen as a significant step amid rising tensions with China, which has responded with its own trade investigations into EU products.
Imposing tariffs on Chinese EVs threatens to escalate trade tensions, potentially disrupting the supply chain for EVs in Europe. This could significantly impact competition in the market, including cost pressures for automakers sourcing components from China, raising uncertainty about the future of the global automotive industry.
Shutdown
Stellantis has extended the production halt on the all-electric Fiat 500e to November 1 due to persistently low demand, despite previous plans to resume in mid-October. The company is investing $111M to develop a new high-performance battery to improve the 500e's range and power.
Still, demand for the model has remained weak in the sluggish European EV market. Stellantis is now prioritizing a hybrid version of the 500e, dubbed the "500 Ibrida," expected to launch in late 2025 or early 2026, to appeal to the growing market for hybrid vehicles. This shift aims to fill the gap left by the discontinued combustion variant and maintain Fiat's presence in the EV market.
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