Automotive Supply Chain Risk Digest #338

July 28 — August 3, 2023 by Elm Analytics

Highlights of the events that impact supply chain risk within the automotive industry — published on August 4, 2023. Including: ACC, Apollo Global Management, Audi, BMW, Bosch, Enevate, Forvia, Ford, Fremantle Highway, General Motors, GM, Lear Corp, Magna, Murata Springs, NHTSA, SAIC, Stellantis, Subaru, Tesla, UAW, Ultium, Volkswagen, VW, Xpeng, Yellow

This week's video:

Bankruptcy

Creditors led by Apollo Global Management are reportedly close to providing Yellow Corp with fresh cash during its upcoming bankruptcy. Yellow, the third-biggest US trucking company, recently averted a strike by its Teamsters-represented workers but has faced financial challenges, including over $1B in debt. Apollo, which owns most of one of Yellow’s term loans, is expected to lead a debtor-in-possession financing deal for the company. Yellow Corp has significant debt payments due in 2024, including a term loan and a US Treasury loan.

Change In Management

Volkswagen has appointed Lyndon Lie as its new Chief Engineering Officer for the North American region. Lie will oversee the development and launch of future VW vehicles in North America and regional research and development priorities. Lie brings extensive experience in vehicle engineering to the role and is a strong advocate for mobility innovation. His appointment is part of VW’s broader strategy to strengthen its engineering and R&D capabilities in North America.

Closing

France’s Forvia has agreed to exit a contract to supply Jeeps in Michigan, leading to significant losses for the supplier. The company will permanently shut down its Highland Park, Michigan, plant near Detroit and lay off 511 employees. Seating competitor Lear Corp is picking up the Jeep seating business. The seating business caused more than $25 million in extra costs for Forvia in the first half of 2023.

Disaster

The car carrier ship Fremantle Highway, which caught fire off the Dutch coast, is being towed to a new location away from shipping routes for salvage. The vessel was carrying 3,783 vehicles, including 498 EVs, when the fire broke out, resulting in the death of an Indian crew member and injuries to seven others who jumped overboard. Ship charter company K Line confirmed that EVs from BMW and Mercedes-Benz were among the cargo on board. The ship’s relocation is an intermediate step in the problematic salvage operation, aiming to reduce risks and further secure the tow lines.

Expanding

Japan’s Murata Springs is expanding its plant in San Francisco de los Romo, Aguascalientes, Mexico. The company currently produces 2.5M springs per month for the automotive market.

Industry Directions

The automotive industry is transforming by adopting intelligent manufacturing driven by AI, machine learning, and automation:

• Digital twins, virtual representations of real-world products, are used for product testing, predictive maintenance, and performance monitoring.
• Automotive IoT systems allow vehicles to exchange data and communicate maintenance updates.
• AI-powered supply chains are improving manufacturing processes and reducing errors.
• Machine learning assists in precision manufacturing, detecting anomalies, and generating innovative designs.
• AI also enhances customer experiences, providing virtual sales assistants and personalized insights.

As the industry evolves, manufacturers must embrace these technologies to remain competitive.

Labor

As contract talks between the UAW and the Detroit 3 automakers continue, the entire automotive supply chain is preparing for the potential of a strike, which could result in devastating losses. For sub-tier suppliers already facing financial difficulties, the threat is existential. Tier 1 suppliers could meet millions of dollars in financial losses in the event of a halt in vehicle production. Lear and Adient, for example, have outlined contingency plans and tightened spending to mitigate potential losses. Small suppliers in the supply base could be especially vulnerable, with plant closures and layoffs already affecting the industry. Companies are communicating with lenders and customers to keep them informed of their financial and operating status.

The UAW is seeking over a 40% pay raise from the Detroit 3 automakers. The proposed gains include a 20% raise upon ratification and a 5% yearly raise for four years. This is a significant increase compared to the previous contract. The union is also pushing for other benefits and a shorter workweek with full pay.

Ultium Cells LLC, a General Motors LG Energy Solution battery JV, has rejected including Ohio plant workers under a national labor agreement. Last week, a group of senators, including Senate Majority Leader Chuck Schumer, urged GM, Stellantis, and Ford to recognize joint venture battery workers under national agreements for better pay and benefits. The senators and the union have criticized Ultium for paying low wages at the Ohio plant compared to nearby shuttered GM assembly plant workers. Ultium claims it provided a proposal for a comprehensive collective bargaining agreement with substantial wages and benefits but said the UAW had yet to offer any wage proposals during the six-month bargaining process.

Litigation

A recent ruling by the Michigan Supreme Court is giving auto suppliers more leverage in contract negotiations with their customers. The court ruled that buyers must be explicit in contracts about what they intend to purchase from a seller, requiring specific language indicating the number of parts or the percentage of components to be bought over the contract’s duration. This ruling could give suppliers more power to ask for price concessions from their customers, especially as many suppliers face financial challenges due to increased costs and labor issues. While the decision only applies to contracts under Michigan law, it could also be influential in other jurisdictions. Suppliers and customers must navigate this new dynamic in their negotiations moving forward.

Three Tesla owners in California have filed a class action lawsuit against the automaker, alleging that it falsely advertised the estimated driving ranges of its electric vehicles. The lawsuit cites a Reuters article that reported that Tesla had created a “Diversion Team” to cancel as many range-related appointments as possible after becoming inundated with owner complaints. The lawsuit seeks class-action status and unspecified damages.

Mergers, Ventures, Acquisitions

Enevate, a California-based company that develops silicon-dominant lithium-ion battery cells, has partnered with JR Energy Solution, a South Korean battery manufacturer, to build a battery electrode manufacturing facility in the United States. The facility will have an annual capacity of 6 GWh of anodes and 6 GWh of cathodes, and it is scheduled to start production in 2024.

VW is considering expanding its electric car cooperation with Chinese manufacturers Xpeng and SAIC beyond China. It may extend the collaboration in the future, but it is currently limited to the Chinese market. VW plans to develop two new electric models with Xpeng by 2026. Audi will also use an electric platform from SAIC to expand its product range in the Chinese market. The collaborations are part of VW’s strategy to offer tailored solutions for Chinese customers. VW’s own electric platforms, PPE and SSP, are still on track for production.

French battery manufacturer Automotive Cells Co (ACC) is in early talks with officials in Canada and the United States to potentially set up a battery manufacturing plant in North America. ACC is a joint venture between Stellantis, Total Energies, and Mercedes-Benz Group. ACC is exploring the possibility of funding and incentives for a new battery processing facility in Quebec. The company has already announced battery plants in Germany, France, and Italy.

Opening

BMW has opened a new research and development center in Shanghai, China, focusing on hardware and software integration for EVs.

Bosch has opened a new semiconductor test center in Penang, Malaysia, to meet the high demand for chips and sensors in the automotive and consumer goods industries. The test center will be used to test semiconductors that Bosch manufactures at its frontend in Dresden, among other locations.

Belgian mining company Umicore has recently inaugurated a massive prototyping center for EV solid-state battery materials in Olen, Belgium.

Production Increase

Subaru is accelerating its EV plans. The company plans to sell 400k EVs in the US by 2028 and half of its global sales from full-electric models in 2030. To achieve this, Subaru will start in-house EV production in Japan from 2025 and in the US from around 2027. It will also expand its EV lineup to eight models from an earlier envisioned four. Subaru’s new EV plans constitute a significant shift for the company, but it faces increasing pressure from regulators and consumers to electrify its lineup.

Ford has resumed production of the F-150 Lightning EV after a six-week shutdown to expand and retool the Rouge Electric Vehicle Center in Michigan. By this fall, the plant is now on track to triple its production capacity to 150k trucks. This will help meet customer demand for the F-150 Lightning, which has been very high since its launch. Ford is also adjusting pricing and working to reduce wait times for customers.

Recalls

NHTSA has opened a preliminary evaluation into 280k Tesla Model 3 and Model Y vehicles over reports of loss of steering control and power steering. The investigation was opened after NHTSA received 12 complaints from owners of the 2023 Tesla Model 3 and Model Y vehicles. NHTSA said this is the first step of a formal investigation to determine if the issue poses an unreasonable safety risk.

Regulation

NHTSA also proposed fuel economy standards for new light-duty cars and trucks requiring an average fleet fuel economy of 58 mpg by the 2032 model year. The proposed measures include a 2 percent per year improvement in fuel efficiency for cars and a 4 percent per year improvement for light trucks for the 2027–32 model years. If finalized as proposed, the new standards could cut US gasoline consumption by over 88B gallons through 2050 while preventing more than 900M tons of CO₂ emissions. The proposal aims to reinforce manufacturing capability in the US and promote the transition to more fuel-efficient vehicles.