Foley Weekly Automotive Report

Analysis by Julie Dautermann, Competitive Intelligence Analyst

This report helps automotive suppliers inform their legal and operational decisions to help address challenges and opportunities. Contact your Foley relationship partner, or John R. Trentacosta or Ann Marie Uetz, to follow up. 

Key developments

• IHS Markit predicts a global production loss of 1.3 million vehicles in Q1 2021 due to supply chain challenges that include shortages of semiconductors, steel and polypropylene.

• Due to the semiconductor shortage, Ford is cutting production at six North American plants, impacting models including the highly profitable F-150.

• Preliminary estimates for U.S. new light-vehicle sales in Q1 2021 correspond to a SAAR of 16.8 million units.

• U.S. new light-vehicle inventories have declined by 21% industrywide compared to the same period one year ago.

• Suppliers and automakers have signaled an intent to place greater priority on securing supply lines, indicating a potential shift away from the just-in-time production model for certain critical components.

• The Biden administration will host a meeting with automotive and semiconductor companies on April 12 to discuss the global chip shortage.

• In a recent letter to President Biden, MEMA, the Alliance for Automotive Innovation, and the UAW emphasized the necessity of a “comprehensive national vision and strategy” to achieve an industry shift towards net-zero transportation and electric vehicles.

• The Pacific Merchant Shipping Association estimates 18% of vessels waited more than five days for unloading in February, compared to 2.7% in February 2020.

• Electric vehicles and low emission technology:
  
  
  • The Biden administration’s $2.3 trillion infrastructure proposal includes plans to invest $174 billion on electric vehicles over the next eight years.
  
  
  • According to IHS Markit, 0.36% of the 279 million vehicles on the road in the U.S. are fully electric, and about 2% of the 14.5 million new vehicles sold last year in the U.S. were fully electric.
  
  
  • Consultancy AlixPartners predicts there will be 18 million EVs on U.S. roads by 2030, and it will cost $50 billion or more to fund an adequate U.S. charging network by the end of the decade.
  
  
  • According to a preliminary ruling by the U.S. ITC, lithium-ion battery technology company SK Innovation did not infringe on patents held by LG Energy Solution.

Market Trends and Regulatory

• Parts shortages and production cuts – IHS Markit estimates a global production loss of 1.3 million units in Q1 2021 resulting from the ongoing semiconductor shortage, as well as shortages of steel and polypropylene, and transit delays at ports. IHS notes the “impact on new vehicle sales remains to be seen at this stage, as inventory levels remain healthy enough to meet today’s demand.”
  
  
  
  • Due to the semiconductor shortage, production of Ford’s highly profitable F-150 is affected by shutdowns scheduled for Dearborn Truck Plant the weeks of April 5 and April 12, and the truck side of Kansas City Assembly the week of April 5. Production of various crossover models is affected by shutdowns of Ford’s Louisville Assembly Plant the weeks of April 12 and April 19, as well as production shutdowns at Oakville Assembly in Ontario the weeks of April 12, 19 and 26; the automaker has cut overtime at multiple plants.
  
  
  • Honda will resume normal production the week of April 5 at its North American plants, which had been impacted by production cuts and downtime since March 22 due to COVID-19, the chip shortage, port backlogs, and severe winter weather.

• As part of the $2.3 trillion infrastructure proposal announced last week, the Biden administration plans to invest $174 billion on electric vehicles over the next eight years with initiatives including consumer incentives, grants to build a national network of 500,000 EV chargers, the development of a U.S. supply chain for EV batteries, and the goal to electrify 20% of the yellow school bus fleet. The proposal, which still has to be approved by Congress, includes a $300 billion investment in domestic manufacturing, of which $50 billion would be allocated to semiconductor manufacturing and research.

• According to preliminary estimates in the most recent West Coast Trade Report from the Pacific Merchant Shipping Association, 18% of vessels waited more than five days for unloading in February, a decrease from 27% in January 2021 (2.7% was the average in February 2020); rail dwell time averaged 8.6 days in February, up from 7.9 days in January 2021. [This report does not track vessel or rail dwell time by industry]

• Chipmaker Renesas Electronics Corp. indicated that production at a fire-damaged plant in Japan will resume in mid-April as the recovery process is ahead of schedule; however, it may take 100 days to resume full production. Approximately half of the company’s revenue is from the automotive sector. On April 12, National Security Adviser Jake Sullivan and Brian Deese, director of the National Economic Council, will host a virtual meeting among chipmakers and automakers amid a broader review of the U.S. supply chain.

• House Democrats Debbie Dingell (Mich.) and Julia Brownley (Calif.) on April 1 introduced a bill that would expand funding for the Department of Energy’s Advanced Technology Vehicles Manufacturing incentive program, including support for electric vehicle battery development. The Alliance for Automotive Innovation, the Motor & Equipment Manufacturers Association, and the UAW have indicated support for an expansion of the ATVM incentive program in a recent letter to President Biden, which also emphasized that current levels of federal support are not sufficient to achieve goals related to a net-zero carbon transportation future.

OEs/SUPPLIERS

• Early estimates from NADA predict a SAAR of 16.8 million units for U.S. new light vehicles in Q1 2021, which compares to a SAAR of 14.8 million units in Q1 2020, and 16.9 million units in Q1 2019. The March SAAR is estimated at 17.8 million, representing a 56.2% increase from March 2020 and a 2.5% increase from March 2019. Cox Automotive predicts that U.S. new light-vehicle inventory will potentially face acute constraints in Q2.

• Suppliers and automakers, including Dana and Ford, have signaled an intent to place greater priority on securing supply lines, indicating a potential shift away from the just-in-time production model for certain critical components. Industry experts point out that achieving greater transparency is a key factor for establishing resilient supply chains, and smaller companies may face capital constraints if required to establish substantial inventories of auto parts.

• Ford set new emissions reduction targets to achieve by 2035 in its 2021 Sustainability Report, with the goal to reach a 76% reduction in scope 1 and scope 2 GHG emissions from operations (based on 2017 emissions), and a 50% reduction in scope 3 GHG emissions from its vehicles (based on 2019 emissions). The automaker previously announced the intent to become carbon neutral by 2050. Separately, the Detroit Free Press reported that Ford has lifted a temporary ban on political donations that was implemented in January as a result of the Capitol riot.

Connected/Autonomous Vehicles and Mobility Services

• Self-driving startup Argo AI is rumored to be considering an IPO this year, according to Bloomberg. The Pittsburgh-based company’s investors include Ford and Volkswagen.

• Autonomous truck startup PlusAI raised $220 million in venture funding in a deal led by FountainVest Partners and ClearVue Partners. The Silicon Valley-based company in 2019 announced a joint venture with China’s state-owned automaker FAW Group to develop and build autonomous trucks.

• Waymo CEO John Krafcik will depart after leading Alphabet’s autonomous driving unit for 5.5 years; he will be succeeded by Tekedra Mawakana, Waymo’s COO, and Dmitri Dolgov, chief technology officer, as co-CEOs.

Electric Vehicles and Low Emission Technology

• AlixPartners predicts that $300 billion will be required to build a global charging network to accommodate the expected market penetration of EVs by 2030, including $50 billion within the U.S. Mark Wakefield, a managing director and global co-leader of the automotive and industrial practice at AlixPartners noted that level three chargers “cost $120,000 to $260,000 installed on average.” According to IHS Markit, approximately 2% of the 14.5 million new light vehicles sold in the U.S. last year were fully electric.

• SK Innovation did not infringe on patents held by LG Energy Solution, according to a preliminary ruling by the U.S. International Trade Commission. The lithium-ion battery technology companies have multiple legal disputes in the U.S., and this marks the first time SK Innovation has received a favorable ruling.

• Mercedes-Benz plans to invest $58 million in its South Carolina facility to prepare for manufacturing an electric version of its Sprinter commercial van, which is tentatively scheduled to begin production in the second half of 2023.

• Stellantis is targeting global sales of 400,000 hybrid and fully-electric vehicles this year, from 139,000 in 2020. The automaker will launch 11 new models this year, and separately announced it will sell hydrogen-powered commercial vans in Europe via the Citroën, Opel and Peugeot brands. Germany and France are among the leading EU countries for hydrogen fueling stations, with 90 and 25 stations, respectively.

• Chinese smartphone maker Xiaomi Corp. intends to invest $10 billion to launch a stand-alone subsidiary focused on developing electric vehicles; no details were provided in regards to partnership agreements or when a vehicle may come to market.