Automotive Supply Chain Risk Digest #412
December 20 - 26, 2024, by Elm Analytics
Contents
BANKRUPTCY
Canoo faces insolvency, workers: “mandatory unpaid break”
CYBER SECURITY
Automotive industry grapples with ransomware risks
HUMAN CAPITAL
Stellantis halts planned layoffs in Toledo
INDUSTRY DIRECTIONS
China's EV market grows exponentially
Global auto sales forecast cautious recovery
MERGERS, VENTURES, ACQUISITIONS
Honda-Nissan merger faces significant challenges
JTEKT sells European bearings business
OPENING
Toyota reportedly plans Shanghai Lexus EV factory
PRODUCTION DECREASE
Volkswagen cuts capacity, jobs, avoids union strikes
BYD factory halted over worker mistreatment
UK car output hits 44-year low
PRODUCTION INCREASE
GAC Honda opens new NEV factory
REGULATION
UK considers hybrid sales post-2030 ban
RISK ANALYTICS
Addressing "materials trilemma" in battery supply
Bankruptcy
Canoo, the struggling EV startup, has placed all its remaining employees on a "mandatory unpaid break" through the end of the year following recent furloughs and threats of insolvency.
The company's financial troubles have worsened, with only about $700k remaining in the bank as it idles its Oklahoma factories while seeking necessary capital. Additionally, Canoo announced a 1-for-20 reverse stock split to maintain its Nasdaq listing and attract more investors amid concerns over its sustainability as a business.
Cyber Security
The automotive manufacturing industry faces significant cybersecurity challenges due to an increasingly complex operational technology environment and a growing attack surface.
Cybercriminals have increasingly targeted the sector with ransomware, employing tactics like double extortion and advanced persistent threats to exploit vulnerabilities and disrupt operations.
Many manufacturers operate flat operational networks with a mix of old and new systems, making it easier for attacks to spread. As a result, companies risk exposing sensitive trade secrets and facing severe financial losses if effective cyber protection measures are not implemented.
Human Capital
Stellantis has put its planned layoffs for the Toledo Assembly Complex on hold, announcing that employees should report to work as scheduled in January instead of facing indefinite layoffs. The company reassessed its strategy and extended the WARN notice, resulting in fewer layoffs than initially expected.
Industry Directions
China's electric vehicle industry has grown remarkably in recent years, rapidly transforming its automotive landscape. This evolution is evident in several key developments:
Production Scaling - China quadrupled its EV production capacity in just three years, significantly increasing the variety of available models.
Market Share - EVs represented only 5.4% of China's car sales in 2020, but this number surged to around 30% by the end of 2024.
Export Growth - In 2024, China became the world's largest vehicle exporter, surpassing Japan, a title it held for decades.
New Energy Vehicle Policies - The government advanced its NEV sales target from 2030 to 2027, resulting in immediate sales boosts.
Infrastructure Investment - Establishing hundreds of thousands of new charging stations within a few years has increased consumer confidence in EV adoption.
S&P Global Mobility forecasts a cautious recovery in global vehicle sales, estimating 89.6M units in 2025, reflecting a 1.7% year-over-year increase despite ongoing challenges such as high interest rates and evolving electric vehicle adoption dynamics.
Regional demand will vary significantly due to differing economic conditions and policy changes, particularly with the incoming US administration.
Europe - Vehicle sales are expected to flatline around 15 million units in 2025, affected by economic recession risks, high prices, and tightening emission regulations.
United States - Projected sales volumes will reach 16.2 million units in 2025, demonstrating mild growth amidst affordability challenges and an uncertain policy environment.
Mainland China - Demand is anticipated to rise to 26.6 million units in 2025, supported by NEV incentives and local government stimulus despite below-par economic activity.
Japan - Japanese light vehicle demand is expected to return to growth in 2025 following a disappointing 2024.
Mergers, Ventures, Acquisitions
Honda and Nissan are exploring a merger to form one of the world's largest auto groups, positioning themselves more robustly in the electric vehicle market. They have signed a memorandum of understanding to discuss the potential merger by August 2026, primarily to share the substantial costs of developing next-generation vehicles.
This move comes as Nissan grapples with declining sales, prompting both companies to seek improved research and development efficiency and reduce overall vehicle development costs by combining their operations.
Despite these potential advantages, the overall history of automotive mergers raises concerns. Many previous mergers have struggled to meet their expectations due to challenges such as reconciling different business cultures, managing extensive engineering teams, and overcoming infighting among executives.
Additionally, both companies must contend with the rapid advancements of newer competitors like Tesla and BYD, who have been more agile in adapting to the shift toward electric and hybrid vehicles.
As they enter these discussions, it remains to be seen whether Honda and Nissan can successfully navigate the complexities of a merger, leverage their collective strengths, and accelerate their transition toward electric mobility in a competitive and evolving marketplace.
The stakes are high, and while the partnership offers a path forward, the potential for success is tempered by the realities of automotive history and the current market landscape.
JTEKT Corporation has made a deal with a German financial investor, AEQUITA, to transfer its needle roller bearings business in Europe, which includes three related companies. This decision is part of JTEKT's plan to improve its overall European management and profitability.
Opening
Toyota reportedly plans to build a new factory in Shanghai, China, to produce electric vehicles, specifically for its luxury brand Lexus. The company aims to start operations at the plant around 2027 and will operate independently, marking a shift from its previous joint ventures in the country.
Production Decrease
Volkswagen has reached a crucial agreement with labor leaders to cut production capacity by several hundred thousand units while keeping its 10 German factories open, averting further union strikes.
The deal, which includes a workforce reduction of over 35k and a transfer of some production to Mexico, aims to save around $4.1B annually as the company adapts to declining market share and slowing demand for EVs.
With the backdrop of a stagnant German economy and rising energy costs, this agreement is essential for maintaining competitiveness in the automotive sector. The measures signify VW's response to intense competition and challenges in the European market, where new car registrations have plummeted.
Brazilian authorities have halted the construction of a BYD electric vehicle factory in Bahia, citing "slavery-like" conditions for workers, who were reportedly deprived of proper living conditions, passports, and salaries.
Over 160 workers were rescued from degrading environments, with some living in facilities where they shared bathrooms with 31 others and slept on beds without mattresses.
BYD has since cut ties with the subcontractor, moved the affected workers to hotels, and stated its commitment to compliance with Brazilian labor laws.
UK car manufacturing reached its lowest output for November since 1980, producing only 64k units, a 30% decline from the previous year.
Production Increase
China's GAC Honda, a JV between Honda and Guangzhou Automobile Group, has opened a new NEV production factory in the Guangzhou Economic and Technological Development District, with a production capacity of approximately 120k units per year. The facility incorporates automated processes such as stamping, welding, and assembly.
Regulation
The UK government is considering allowing hybrid vehicles to remain on sale after the 2030 ban on new petrol and diesel cars, aiming to provide clarity for the struggling automotive industry. As manufacturers seek guidance on the transition to zero-emission vehicles, there are discussions about flexibility in regulations regarding hybrid emissions and sales targets.
Risk Analytics
Mckinsey delves into key findings on the evolving "materials trilemma" - availability, affordability, and sustainability—and explores actionable strategies to secure a sustainable battery raw material supply chain by 2030 in:
