Auto File: Supply Chain Pain

Adient

08/02/2023 16:07

Joe White 
Global Autos Correspondent 
Greetings from the Motor City!  
Here’s the deal: You won’t see anything in today’s Auto File
about the State of the Union or the Chinese balloon. But be
warned, the phrase “supply chain” will be used a lot, and for
the auto industry, those are dirty words. 
Here’s some of what’s happening in the world of cars: 
    * Supply chain disruptions choke cash flow at VW. 
    *         Uber hits the gas. 
    * EV batteries are getting a second life. 

Volkswagen’s supply chain migraine 
Volkswagen said late Tuesday it fell 3.6 billion euros short of
its cash flow target for 2022, despite strong profits and profit
margins, because supply chain bottlenecks left it holding
thousands of vehicles it could not ship. 
VW is joining Ford in the industry’s supply chain hell. Like
Ford, Volkswagen said it encountered an unexpected logistics
collapse late in the year. (VW and Ford are not alone. Subaru
slashed its production outlook blaming chip shortages.) 
There will be more hell to pay. VW said it will stockpile
components as insurance against further supply disruptions, and
make up for lower unit sales by raising prices and cutting
costs. VW’s full Q4 and 2022 financials are due out March 14. 
Suppliers want automakers to share the burden 
Chip shortages, lost production and rising raw materials costs
have also battered big auto parts and technology suppliers
during 2022. Now, suppliers say they are ready to wrestle with
automakers to get some of the lost money back. 
Forms of the word “recovery” are getting a workout in quarterly
investor calls. For auto suppliers, recovery means getting money
from auto manufacturers to offset the higher costs of raw
materials that were not foreseen when contracts to engineer and
produce parts were negotiated. 
“Our general view on the recovery or offset of commodity cost
increases is roughly the same. I think it’s roughly half over
the next two to three years,” Lear Corp. CFO Jason Cardew told
analysts this week. 
Suppliers and automakers are accustomed to haggling over who
pays for a jump in steel costs. But over the past year, labor
and energy costs have soared beyond expectations as well, Adient
CEO Douglas Del Grosso told analysts. 
“It’s a recovery that they’re not necessarily accustomed to
discussing because we’ve never had this spike in inflationary
pressure in those two areas,” he said. 
These negotiations are complex and strategic, because it’s not
just money at stake, but long-term relationships. 
“Our real focus has been how do we make sure we keep our
customers connected,” Aptiv CEO Kevin Clark told analysts.
“We’ve consciously made the decision to absorb a portion of that
cost near term and go back to the customer for relief once we’ve
addressed the issue.” 
Investors in auto parts makers want to see those companies
recover as much of the past year’s inflation costs as possible.
Clark offered some words of caution. 
“It’s an industry with a tough pricing environment all the
time,” he said. “So those conversations…they’re never easy.” 
Are EV adoption forecasts too bullish? 
A new study raises fresh questions about ambitious forecasts for
boosting electric vehicles to 50% or more of the U.S. vehicle
market by 2030. 
    1.  Partners, an investment firm, said automakers could
struggle to
get the raw materials needed for the batteries required to
support their EV production plans. Consumers could balk at EVs
if prices don’t come down and today’s spotty public charging
infrastructure is not dramatically expanded.

Efforts to build EVs without relying on China could complicate
matters. Attempts to develop U.S. lithium and battery mineral
mines are encountering opposition from groups concerned about
the impact on the environment. A federal judge this week ordered
a fresh review of permits for the Thacker Pass lithium project
in Nevada, an operation partly funded by General Motors.  
Too many factories, too few buyers 
Here’s one more problem looming over the shift to EVs: Too many
factories chasing too few buyers. 
Legacy and startup automakers are building new factories to
produce EVs more efficiently using the latest in manufacturing
automation and assembly system layouts. 
AutoForecast Solutions took a fresh look at the data and warns
that by 2030, automakers could have 41 million vehicles worth of
excess production capacity worldwide – equivalent to nearly half
of current global sales. 
These warnings did not stop investors this week who pumped money
into EV startups such as Faraday Future and Canoo, despite what
Breakingviews sees as a “looming pileup.” 
Elon Musk’s latest “Master Plan” 
Elon Musk is launching the hype cycle for Tesla’s March 1
investor day, promising a “Master Plan Part 3” that will show
the “path to a fully sustainable energy future for Earth.”  
Customers and shareholders would likely be satisfied with a firm
launch date for the Cybertruck, more clarity about plans for a
truly low-cost Tesla vehicle and a promise from Musk to hire a
full-time CEO for Twitter.  
EV batteries get a second life on the grid. Finally. 
The concept of using batteries salvaged from electric vehicles
to store renewable energy for the electric grid has been around
for years. Now, for what could be the first time, it’s happening
in real life. 
California startup B2U Storage Solutions has hooked up 1,300
recycled EV batteries to a solar energy facility in California. 
Neoen of France is using an array of purpose-built batteries
made by Tesla to provide grid storage in Australia, but not
recycled EV batteries. 
A New Year’s hangover for China’s automakers 
New vehicle sales in China plunged 38% in January, payback for a
buying surge at the end of 2022 as customers tried to take
advantage of government tax breaks that ended with the old
year. 
Uber speeds away from the pandemic 
    Uber’s CEO said the ride-hailing company has put the
pandemic behind it and is on the road to a full-year profit
after thumping Wall Street expectations in the fourth quarter. 
Uber has some distance to go in its journey toward robust
profitability. Its pre-tax margins in Q4 were just 2.2% of gross
bookings. But the company forecast pre-tax profits of $660
million to $700 million for Q1 – better than the Street
consensus. More on Uber’s financials here.  
Mercedes sprints into the U.S. electric van market 
Mercedes took the wraps off its new, electric Sprinter
commercial van, which it will build in South Carolina and
Germany, and offer to U.S. customers for the first time. 
Sprinters made in South Carolina will qualify for U.S.
commercial EV subsidies, and compete with Ford’s electric
Transit, General Motors’ BrightDrop unit and forthcoming e-vans
from Stellantis. The battery-powered Sprinter will also make
life even harder for electric delivery van startups such as
Rivian and Arrival.  
The U.S. electric van market is still more promise than reality.
Currently, Ford’s E-Transit leads the segment with just 770
vehicles sold in January – 7% of total Transit sales for the
month.  
What happens when your EV gets cold 
Electric vehicles do not like cold weather. Anyone who’s driven
an EV in the dead of a Michigan winter knows the sinking feeling
of watching 2 miles or so of range disappear for every mile
traveled.  
It turns out, driving faster in the cold could help extend the
driving range. 
The ideal temperature for driving an EV is 68 degrees
Fahrenheit, according to Geotab, a connected vehicle technology
and data company. But at that temperature, you’d need to drive a
sluggish 19 miles per hour to get the most driving range. 
In the cold, your EV is burning electrons running the heater and
defroster. When it’s freezing, you are better off driving at 37
miles per hour to get where you are going, and run the heat for
a shorter period of time, “which is good,” Geotab found. 
Hertz’s Tesla fleet falls short  
    Hertz said it has fallen short of a plan to add 100,000
Teslas to its rental fleet this year. Instead, the rental car
company indicated it has 48,344 Teslas to offer. 
Otherwise, Hertz delivered an upbeat outlook. 
Happy Valentine's Day. You’re fired 
    Ford workers in Germany could find out on Feb. 14 what the
automaker’s plans are for cutting staff. German union leaders
have told workers at Ford’s Cologne operations to attend a
briefing that day on talks. Ford has signaled plans to cut 3,200
jobs in German engineering operations. CEO Jim Farley has said
the company’s engineers are 25-30% less efficient than those at
rival manufacturers. 
Essential Reading 
    A solar power tipping point? 
    Big tech digs into Congo’s troubled cobalt sector 
    A Honda that helps you manage the curves – Detroit Free
Press. 
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