New auto manufacturing practices

Issue #128, Jan 30th 2022

Desperate times call for desperate measures. It may not yet be desperate times yet for the automotive industry. But those who spot the changing trends early and act fast tend to gain from it. Henry Ford made the linear assembly line popular in Detroit for the Model T. But the diamond shape seems to be the choice for Tesla. It apparently helped in least excavation of earth during factory construction, was north-facing to tap renewable energy and provides long stretches of assembly line. MIT Professor Yossi Sheffi warns about the sting of the bullwhip effect as demand springs back post the pandemic. Stockpiling of chips could lead to supply chain imbalance, according to Stellantis. One way to manage the chip shortage is to upgrade to new generation chips. The 'right to repair' could become a point to ponder over for auto business leaders, as the movement catches up from consumer electronics to farm equipment, faced by John Deere. Here are some interesting updates in new manufacturing practices in the auto industry to manage the challenges faced today.

The most productive automotive factory in NA

With auto production stifled by supply chain shortages in 2021, Tesla expanded its global production by 83% over 2020 levels. Its more recent factories were designed with intention, each one further refining the diamond shape developed for its Nevada battery factory. The shape allows for long stretches of uninterrupted manufacturing lines. Tesla’s strategy to pursue colossal manufacturing hubs in its biggest markets is paying off. With the early investments in EV manufacturing, it has become the priority relationship for key suppliers. Tesla tweaked its onboard software to make it work with available chips. - Bloomberg

Managing the bullwhip's sting

In spring 2021, consumer spending accelerated sharply as the rollout of vaccines and decline of COVID-19 case numbers encouraged a broader reopening of the economy. The growing boom in demand induced a scarcity of semiconductor chips, home appliances, cars, and building materials. When there is an unprecedented demand surge, the bullwhip effect imparts a painful sting. . Although every disruption brings unique challenges, the fundamentals of preparing for and responding to disruptive conditions remain the same. It entails understanding a company’s specific supply chain vulnerabilities, determining what can be done about them beforehand, monitoring the situation for disruptions, and implementing countermeasures as needed. - Prof. Yossi Sheffi in MIT SMR

Stockpiling chips and supply chain imbalances

Weakness in semiconductor supply chains is affecting everything from automobile to consumer electronic manufacturing. Shortage in chips is leading to an inflation in used-car prices. But Stellantis CTO Ned Curic does not want his company to stockpile semicondutor chips, at least, not as a rule. It could lead to supply chain imbalances. - Detroit Free Press

Upgrading chips to face shortage

Since auto parts supplier and OEMs use chips that are older than what are currently being used in manufacturing smartphones, the challenge of procuring them gets exacerbated due to a crippling global shortage. “The generation of chips that the auto industry uses is five years behind smart phones and consumer durables. Hence in supply terms, it is even lower down the pecking order of priority,” Vikram Mohan, MD, Pricol, told TOI. He further adds that his company is “onboarding new chips and getting OEMs to homologate,” because the “cost impact is minimal — $2-$3 per vehicle.” - Economic Times

The weak link for EV batteries

U.S. auto makers are pouring billions of dollars into domestic EV factories and lithium-ion battery plants to supply them. GM recently announced $6.6 billion of EV investments into two Michigan plants. Ford announced similar projects in Tennessee and Kentucky last September. Capital is pouring into U.S. EV and battery plants, but not into the foundations of a domestic battery industry, leaving the supply chain uncomfortably dependent on China. EVs won’t get a “100% Made in U.S.A.” stamp for a good while yet. - WSJ

The right to repair for farm equipment

John Deere posted record profits in 2021 as the pandemic made consumers and countries more reliant than ever on a functioning agricultural sector. But now the company has a challenge: farmers. They are revolting against restrictions on how they repair increasingly complex equipment. Lawsuits and legislation may soon threaten this key revenue stream. A farmer in Alabama recently filed a suit, alleging the company’s proprietary tractor software is creating a monopoly that’s unfair to small farmers. Providing the right to repair their products is becoming an area of focus across sectors and could extend to the automotive sector too. - Bloomberg, New York Times and AL.com