Blog - Volkswagen and EV Supply Chain

VW and China

Volkswagen has confirmed it is in talks with its partner in China about the future business direction after a German newspaper reported alleged evidence of forced labour.

As is required by all non-Chinese carmakers who wish to operate in the country, Volkswagen has a joint venture with a local company to produce vehicles. Its partnership is with SAIC, which also owns the MG and Maxus marques, along with many Chinese car brands.

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The resulting SAIC Volkswagen joint venture is not under full control of Volkswagen Group. However, any claims of slavery or other practices that go against its own corporate responsibility pledges would be of concern to the German carmaker.

Its discussions with SAIC follow a report in Handelsblatt, a business newspaper in Germany, which said that independent researcher Adrian Zenz had found evidence of the use of forced labour in the construction of SAIC Volkswagen’s test track in Turpan, Xinjiang.

Zenz told Reuters that he had found photos and statements online, including on the website of an engineering company hired by Volkswagen and SAIC in Xinjiang, which indicated that Uyghurs were employed to construct the test track under poverty alleviation programmes that United Nations experts have said often involve forced labour.

HR, Corporate Governance and Human Rights

There is increasing focus from consumers, activist shareholders, investors, and the public sector on labor practices including HR policies as part of Scope 3 emissions along with stronger oversight of human rights issues as part of the overall supply chain management.

China and EV Supply Chain

hina is set to consolidate its position as the dominant country in the automotive industry as a result of developing cutting-edge battery technology for use in electric vehicles (EVs).

The country is already the leader in EV production, with GlobalData’s Global Light Vehicle Hybrid and EV database indicating an EV and hybrid sales volume of 11.42 million for 2023, nearly three and a half times more that of the next nearest country, the US with 3.35 million.

The EV industry remains relatively nascent, however, and sales figures are expected to grow rapidly at a compound rate of 16.1% between 2023 and 2028, reaching 53.9 million, according to GlobalData’s Automotive Predictions 2024 report.

During this period, battery electric vehicle (BEV) production is expected to overtake that of hybrids (HEVs), and China is already well placed to take advantage of this due to its scale, its plentiful supply of the critical minerals required for battery production and the strategic efforts of the country’s government in encouraging collaboration between companies.

United States EV content rules and challenges:

The big picture: The entire industry is worried about the magnitude of what Stellantis CEO Carlos Tavares calls "the China offensive."

• Companies that can't match China's low-cost electric vehicles (EVs) "are going to be in an existential problem," Tavares told Bloomberg.
• Even the indomitable Tesla CEO Elon Musk is concerned, warning that without trade barriers, Chinese automakers will "demolish" global rivals.

Catch up fast: China is the world's largest and fastest-growing automobile market.

• Chinese cars have long been poorly made. But thanks largely to government support — plus access to cheaper batteries and labor — the country now makes attractive, affordable models, like the sub-$11,000 Seagull EV from BYD, the world's top seller of EVs and plug-in hybrids.

Yes, but: Chinese automakers built too many factories, forcing them to look to foreign markets like Europe for continued growth.

• The U.S. could be next, where there's a big opening for budget-priced EVs, despite stiff Trump-era tariffs on Chinese cars.

Driving the news: 福特 , GM and others see the writing on the wall, and are reassessing their strategies and cutting budgets to stay competitive.

• Even Tesla is scrambling to keep pace with low-cost Chinese manufacturers by slashing prices and working to develop a cheaper EV by 2025.

Zoom in: Ford is forecasting continued heavy losses in its EV division — one analyst figures it will lose a whopping $55,000 on every EV it sells this year.

• The company is cutting $2 billion in spending and de-emphasizing electric SUVs in favor of smaller, more affordable EVs.
• Ford CEO Jim Farley also recently disclosed a secret project to create a flexible, low-cost EV platform.
• "All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese [automakers]," Farley told analysts during a recent call.

Meanwhile: After boasting for years that it's "all-in on EVs," GM now plans to launch plug-in hybrid vehicles in North America to meet emissions targets while fully-electric sales slowly ramp up.

• "I don't discount any competitor," 通用汽车 CEO Mary Barra said of China on a recent call with analysts.

• "We need to make sure we have beautifully designed vehicles that have the right features, the right safety and the right customer experience. And we have to do it at a competitive cost base."
• Like Ford, GM is undergoing a $2 billion cost-cutting effort.

The intrigue: Legacy automakers' belt-tightening will also affect their traditional gas vehicles.

• Instead of full redesigns, gasoline models will likely get less ambitious (and cheaper) "facelifts" — a new grille, headlights or fender design, for example.
• Lineups will be simplified, with fewer options and more standard equipment in a range of "good, better, best" trims.
• GM says it will save $200 million this year by eliminating more than 100 selectable options. Ford's decision to cut a little-used automated parallel park feature, meanwhile, will save it $10 million, per COO Kumar Galhotra.

What to watch: Chinese cars are already being exported to Mexico, and BYD, Chery and at least one other Chinese carmaker are scouting plants there, the Financial Times reported — meaning Mexico could become a backdoor for selling Chinese cars in the U.S.

The bottom line: Detroit has seen this movie before with Japanese and Korean rivals, which filled a need for affordable, efficient cars — and consumers eventually embraced them.

• The China offensive has yet to arrive, but the mere threat is whipping American automakers into a frenzy.

Source: https://www.autonews.com/regulation-safety/bidens-drive-evs-collides-detroits-profit-machines or https://www.axios.com/2024/02/14/chinese-ev-electric-vehicles-sold-america

Source - https://www.just-auto.com/features/how-chinas-ev-battery-tech-is-cementing-it-as-the-auto-industry-leader/

Source - https://www.monacoforfinance.mc/en/articles/other-topics/1668-why-investors-need-to-pay-attention-to-biodiversity.html or https://www.allens.com.au/insights-news/insights/2024/02/what-is-on-the-horizon-for-business-and-human-rights-2024/

Source - https://www.driving.co.uk/news/business/volkswagen-considering-future-with-chinese-partner-over-forced-labour-claims/

Source - https://www.wsj.com/business/autos/volkswagen-eyes-march-delivery-for-cars-delayed-at-u-s-ports-over-part-tied-to-customs-issues-eebd1f3b?mod=autos_news_article_pos1&utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-02-15%20Automotive%20Dive%20%5Bissue:59219%5D&utm_term=Automotive%20Dive

What needs to happen:

1. Automotive need to balance hybrid automotive as part of addressing profit, planet, and people. https://au.investing.com/news/stock-market-news/morgan-stanley-raises-outlook-on-toyota-due-to-hybrid-cars-strength-93CH-3113773 Toyota Motor Corporation
2. Lithium risks - https://www.thespec.com/opinion/contributors/from-mines-to-batteries-three-risks-on-lithium/article_b318b0d5-b647-50ad-91ec-d4ece23535a6.html
3. EV - https://www.latimes.com/environment/story/2024-02-15/falling-ev-sales-raise-worries-over-california-climate-plan
4. Hydrogen - https://finance.yahoo.com/news/hydrogen-mobility-crossroads-shells-shel-125400126.html
5. Cobalt - https://source.benchmarkminerals.com/article/china-to-stockpile-cobalt-metal-after-prices-more-than-halve
6. Green metals - https://www.northernminer.com/subscribe-login/?id=1003863200
7. EV - https://www.scientificamerican.com/article/electric-vehicles-arent-ready-for-extreme-heat-and-cold-heres-how-to-fix-them/
8. Lithium - https://impactalpha.com/lilac-solutions-raises-145-million-for-green-lithium-production/
9. Taxation - https://financialpost.com/opinion/canada-ev-strategy-cost-4-million-a-job
10. Road taxes - https://spectrumnews1.com/ky/louisville/news/2024/01/11/electric-vehicle-tax-

Paul Young CPA CGA is a former IBM Customer Success Manager that has deployed over 300 data and AI solutions across geographies and industries for the past 8 years. Paul is also a lecturer and Consultant in many areas like ESG, Financial Close, Emerging Technologies, IoT, Emergency Planning, Crisis and Risk Management, and transforming the board of directors.

Paul_Young_CGA@outlook.com

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Blog – Automotive Sector Analysis and Commentary – January 2024 - https://www.dhirubhai.net/pulse/global-automotive-sector-analysis-commentary-january-paul-young-n7hxc/

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Courses - https://www.dhirubhai.net/posts/paul-young-055632b_activity-7163302861974519809-ryf3?utm_source=share&utm_medium=member_desktop