Automotive Supply Chain Risk Digest #424
March 14 - 20, 2025, by Elm Analytics
→ Navigating the Tariff Storm: A 90-Day Playbook For Suppliers and Customers
Contents
HUMAN CAPITAL
Audi to cut 7.5k jobs by 2029
LABOR DISPUTE
UAW files complaint against Volkswagen
MERGERS, VENTURES, ACQUISITIONS
GM and Hyundai share EVs and trucks
Magna Steyr to build Chinese EVs
Mitsubishi partners with Foxconn for EVs
SK On to supply Nissan batteries
PRODUCTION DECREASE
Tesla Cybertruck sales drop significantly
PRODUCTION INCREASE
Nissan increases Mexico production ahead of deadline
REGULATION
Tariffs threaten auto industry stability
S&P predicts scenario’s impact on production
Carmakers reconsider investments amid trade threats
Multinational companies assess tariff proposals
Trump's turbulence frustrates carmakers
RISK ANALYTICS
Tesla's financial discrepancy raises concerns
SUPPLY CHAIN
Automakers scrutinize supply chains for compliance
Ford stockpiles parts for tariff mitigation
Human Capital
Audi plans to reduce its workforce in Germany by up to 7.5k jobs by 2029. The job cuts will mainly affect administrative and development positions. This decision is part of a cost-saving strategy that aims to save the company $1.1B annually.
This effort is part of a larger initiative by the Volkswagen Group, which aims to cut nearly 48k jobs across the entire group. Audi's operating margin has dropped to 4.5% due to weak sales and rising costs, prompting these necessary changes.
Labor
The UAW has filed a complaint against Volkswagen with the NLRB, alleging that the company violated federal law by implementing layoffs and production cuts in Chattanooga, Tennessee, without consulting the union and directly communicating with employees. They are requesting that the NLRB suspend these changes until the complaint is resolved.
Mergers, Ventures, Acquisitions
General Motors and Hyundai are finalizing a deal to share electric commercial vans and pickup trucks in North America. Hyundai will supply GM with electric vans initially imported from South Korea, with a possibility of North American production by 2028.
In return, GM may provide Hyundai with midsize pickup trucks to help increase its market presence in the US. The partnership could also involve sharing supply chains and technology to reduce costs and enhance competitiveness against Chinese EV makers.
Magna Steyr is reportedly nearing agreements with XPeng Motors and GAC Motor to assemble Chinese EVs at its plant in Graz, Austria. The Semi-Knocked-Down assembly strategy will help the automakers avoid EU tariffs of 20.7% on Chinese imports, while Magna Steyr fills capacity gaps left by lost contracts with Fisker and Jaguar. The deals, expected to be finalized by June, will initially involve limited production volumes to test the European market.
Mitsubishi Motors reportedly plans to partner with Taiwan's Foxconn to produce electric vehicles, aiming to cut production costs while maintaining its own manufacturing operations.
SK On will supply Nissan with nearly 100GWh of batteries from 2028 to 2033 for its Canton, Mississippi plant. This marks SK On's first partnership with a Japanese automaker and supports Nissan's plan to enhance localized EV manufacturing. The deal involves a $661M investment from SK On, alongside Nissan's $500M investment in the Canton facility.
Production Decrease
Despite incentives, Tesla's Cybertruck sales have dropped to 7k–8k units in Q1-2025, down from 10k–12k. The numbers are far below the Gigafactory Texas annual capacity of 250k units, indicating a mismatch between production and demand and raising concerns about long-term sales and production strategy.
Production Increase
Nissan has increased production $ of its Mexico-made Sentra, Versa, and Kicks models ahead of a potential 25% US import tariff set to take effect on April 2. These budget-priced models account for nearly one-third of Nissan's US sales volume.
The automaker plans to prioritize higher-margin configurations to help offset the cost and may spread the tariff burden across its lineup if the tariffs persist. Relocating production to the US is not being considered.
Regulation
The automotive industry is currently facing an unprecedented crisis due to tariffs imposed by President Trump. This situation is considered even more significant than the pandemic $ and semiconductor shortages, prompting companies like Ford and Stellantis to take swift action.
Both companies are rushing to move parts across borders before the deadline, with Ford stockpiling USMCA-compliant parts and Stellantis speeding up shipments to its US plants.
However, the urgency of the crisis is not matched by the industry's readiness. While the Detroit Three automakers have some excess capacity for US production, many suppliers lack the workforce needed to expand domestically, which limits their ability to offset the impacts of the tariffs.
Some automakers, like Honda, are exploring creative solutions, such as sourcing batteries from Toyota's new North Carolina plant to reduce their dependence on imports.
Experts emphasize the need for immediate action to mitigate the impact of the tariffs, warning that prolonged tariffs could lead to long-term production shutdowns, increased vehicle prices, and strained supply chains. This situation may force companies to raise prices, cut production, or reconsider their operations in North America.
The vague and frequently changing nature of tariff decisions adds to the uncertainty, making it difficult for manufacturers to plan investments or shift production.
"What is it that Canada and Mexico need to do for this situation to improve? It's a tense environment, and there are no clear demands"
- Dan Hearsch, Americas leader of automotive and industrial at AlixPartners.
Even if automakers choose to relocate their manufacturing, the transition will take years due to the complexity of the supply chains and the limited production capacity in the US.
S&P Global Mobility has outlined three potential scenarios for the impact of tariffs on the North American auto industry:
The extended disruption scenario (50% probability) is the most likely, with a 16 to 20-week disruption causing production to drop by up to 20,000 units per day as OEMs conserve inventory and limit discounts.
The quick resolution scenario (30% probability) envisions a short-term disruption of up to four weeks with minimal long-term effects.
The least likely is the tariff winter scenario (20% probability), which would embed tariffs into trade structures, leading to costly re-sourcing and a projected 10% decline in North American light-vehicle sales.
Car manufacturers like Volkswagen and Ford are rethinking their investment plans in the US because of uncertainty over tariffs threatened by Donald Trump. Volkswagen is delaying plant expansions in Tennessee, while Ford is moving engine production from Canada to avoid these tariffs.
Suppliers are also affected by changing production strategies. Industry leaders warn that this uncertainty could lead to investment paralysis, disrupting planning and increasing the risk of production delays and higher costs.
Risk Analytics
The Financial Times reports that Tesla's financial records show a $1.4B discrepancy $ between reported capital expenditures and asset value increases over the last six months of 2024. Although Tesla spent $6.3B, assets grew by only $4.9B. This lack of transparency raises concerns amid declining car sales and a market valuation drop from $1.7T to under $800B, potentially impacting investor confidence.
Supply Chain
General Motors, Stellantis, and Ford are intensifying scrutiny of their supply chains $ to ensure USMCA compliance and avoid 25% tariffs on imports from Mexico and Canada.
Automakers are demanding compliance documentation from suppliers and encouraging them to reduce the dutiable value of components.
Suppliers are weighing the cost of shifting production versus absorbing tariffs, with some opting to build parts reserves before the tariff reprieve ends.
"Suppliers will make a cost-benefit analysis... but the supply chain and automotive industry doesn't carry 25 percent margins. So that hit is significant."
- Mitchell Zajac, Automotive Attorney, Butzel Long.
Ensuring USMCA compliance is critical to avoiding substantial tariff costs that could financially strain smaller suppliers and disrupt automotive supply chains.
Ford is stockpiling USMCA-compliant parts and urging suppliers to continue shipping under existing contract terms despite looming 25% tariffs on Mexico and Canada imports.
Tensions are rising as suppliers question who will bear the added costs, with some threatening to halt shipments unless customers agree to pay customs taxes.
Automakers, including Ford, have been largely noncommittal about absorbing the tariffs, putting financial strain on smaller suppliers who may not survive the cost burden. Ford has reassured suppliers of its commitment to collaboration but has not offered direct financial support.
Strained relationships between automakers and suppliers increase supply chain vulnerability, potentially causing production disruptions and economic instability among smaller parts manufacturers.
Sadly, I'm not sure the tariff scenario probability predictions are right. Seems to me the teams who developed them are a little over optimistic about it all fizzling out nice and quickly and the past becoming the future. It appears to me a broader view, greater than just automotive, would be a wiser factor. I fear the isolationism factor is intended to be far wider than automotive manufacturing alone.