Focus: Auto suppliers feel the green squeeze as carmakers get clean
26/09/2022 11:50
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By Nick Carey, Victoria Waldersee and Giulio Piovaccari
TAMWORTH, England, Sept 26 (Reuters) - The auto
industry's drive to a greener and cleaner future is a
treacherous road for companies in its beleaguered supply chain.
Only the strong and the shrewd may survive.
Many auto suppliers, already squeezed by rampant inflation
and energy prices, say they have little choice but to shoulder
the extra costs of making their components sustainable to meet
carmakers' environmental targets.
"If you don't, you're not going to have a business in five
or six years supplying major carmakers," said Shane Kirrane,
commercial director at Autins Group AUTGA.L , which has plants
in Britain, Sweden and Germany that make acoustic and thermal
insulation for cars.
All major carmakers have committed to green targets, seeking
to purge dirtier materials from their supply chains to satisfy
regulators and investors as they transition to electric vehicles
(EVs). urn:newsml:reuters.com:*:nL5N2VP1GS
BMW BMWG.DE , for instance, expects all of its battery and
many of its steel and aluminium providers to produce materials
made using renewable energy, while Volvo VOLCARb.ST is
targeting 25% recyclable plastic in its cars by 2025.
Many suppliers are consequently making large investments to
green up their acts, from developing recyclable parts to hooking
up their businesses to renewable energy, according to interviews
with more than a dozen industry players.
At the same time, many say they have little leeway to raise
the prices they charge big automakers, which are themselves
laser-focused on costs as they shell out tens of billions of
dollars to reinvent themselves for a lower-carbon era.
"We use the term disruptive all the time, but it's much more
than just disruptive," said Joe McCabe, CEO of researcher
AutoForecast Solutions. "We're going to see a real big shakeout
the next five, 10 years in the auto supply chain."
Philadelphia-based AutoForecast compiles auto industry
production estimates and advises suppliers on whether the
requests-for-quotes (RFQs) they receive from carmakers are based
on realistic assumptions for vehicle production volumes.
"Suppliers are being asked to develop new technologies to
support EVs and invest in a greener supply chain with (high)
volumes we don't believe are obtainable based on the actual
RFQs," McCabe added. "But carmakers are also telling suppliers:
'If you want to be part of this new green revolution, give me
the best price possible so I don't go to your competition'."
'A MONUMENTAL TASK'
Carmakers are often reluctant to discuss contractual
relationships with suppliers.
Mercedes-Benz MBGn.DE , which aims to extensively use
recyclable material and "green" steel made using renewable
energy in its cars, told Reuters it was fully aware that going
to zero emissions was "a monumental task" for suppliers.
It said that it planned to reach this goal collaboratively,
including providing training to suppliers or shared research and
development.
Volkswagen VOWG_p.DE , targeting a 30% reduction in CO2
emissions for its vehicles including their supply chain, said it
has a collaborative relationship with suppliers, citing a joint
programme it created to tackle rising energy prices, without
providing details.
Going green is costly for even the biggest suppliers, such
as American Swiss connector maker TE Connectivity TEL.N ,
according to its chief technology officer Ralf Klaedtke. The
company, which is worth about $39 billion, launched its own
sustainability drive in 2020 and is working on recyclable
products with carmakers including Volkswagen, Volvo and BMW.
"For smaller suppliers, the challenge is even more severe,"
Klaedtke said. "The suppliers that don't qualify for
sustainability will be ruled out of the procurement process."
For Britain's Autins, which had revenue of about 23 million
pounds ($26 million) for the fiscal year ending September 2021,
one part of the green solution is to shift to 100% renewable
energy later this year, according to CEO Gareth Kaminski-Cook,
speaking at the company's plant in Tamworth, central England.
He said this would cost his company several thousands of
pounds more per year - the cost of building out infrastructure
to connect renewable energy to the grid is passed on to business
customers. Eventually, though, those bills will come down.
The publicly-traded company has also been pursuing its own
green targets to satisfy shareholders.
Autins, whose customers include Volkswagen and Jaguar Land
Rover, has invested about 50,000 pounds in developing a
recyclable insulation material that should be ready around the
end of 2022, Kaminski-Cook added.
'KILLED OUR MARGINS'
Plastic and rubber component maker Sigit, with annual
revenue of around $200 million, spent 10 million euros in
2019-20 on a research centre in Turin that has developed a
recyclable thermoplastic composite bracket 90% lighter than the
previous metal part.
CEO Emanuele Buscaglione said supply-chain problems that
began during the pandemic plus soaring costs had "killed our
margins" and "created the perfect storm" for the industry.
The Swiss-Italian company spent three years developing the
bracket and now has its first contract, for vans made by
Stellantis STLA.MI , the world's No. 4 carmaker, Buscaglione
added.
"We are trying to concentrate the few resources we have
available on innovation," said the CEO. He added, though, that
Sigit's carmaker customers had been unwilling to pay any more
for new, greener products so far, even the luxury brands.
The challenge of passing on added costs to customers is
"anything but trivial," Buscaglione says.
Suppliers are also feeling the strain in Germany, Europe's
biggest car market.
M. Busch, which makes cast-iron parts including brake discs
and gearboxes in North-Rhine Westphalia, wants to shift from
burning coke to "biocoke" made from organic waste, use renewable
energy and replace gas for melting the metal with hydrogen,
owner Andreas Guell said.
But the organic waste is hard to find, there is not enough
hydrogen fuelling infrastructure to meet his needs while
renewable energy is still expensive compared with conventional
power, he added.
Guell says carmakers only want to work with suppliers who
use green energy, leaving him in a tight spot.
German aluminium supplier Gerd Roeders, the owner of G.A.
Roeders, which provides material for Volkswagen and Continental,
wants to shift to a hydrogen-and-gas mix from just gas, but says
government and carmaker support is needed to build green
infrastructure.
"To be innovative, the supplier industry needs money,"
Roeders said. "We feel a bit stuck."
($1 = 1.0004 euros; $1 = 0.8687 pounds)
(Reporting by Nick Carey in Tamworth, Victoria Waldersee in
Berlin and Giulio Piovaccari in Milan; Editing by Pravin Char)
((nick.carey@thomsonreuters.com; +44 7385 414 954;))