The Chip Shortage Is Making The Auto Industry Rethink Itself

The federal government is getting serious about this whole semiconductor thing, Porsche would like some of the batteries everyone else is having, and Volkswagen's van division might just get by with a little help from a friend. All that and more in this Friday edition of The Morning Shift for April 2, 2021.

Of course, we've been talking about the chips seemingly every day of the past year. On April 12, it will be the central focus of a discussion in Washington, starring various automakers and semiconductor manufacturers and hosted by two of President Biden's aides, according to Reuters:

Two top White House aides will host a meeting on the resiliency of the U.S. supply chain amid a broader policy review on the issue, an official said on Thursday.

White House press secretary Jen Psaki said the meeting would be hosted by President Joe Biden's national security adviser, Jake Sullivan, and a top economic aide, Brian Deese.

The meeting will be held on April 12 and include chipmakers and automakers, a source familiar with the matter said.

It's hard to imagine what could be done to ease the drought on car manufacturers at this point. The CEO of chipmaker GlobalFoundries said to CNBC today that demand will likely continue to outstrip supply until "2022 or later." If you ran an automaker and were clever enough to start stockpiling chips last year before they all wound up in gaming consoles and monitors, you're sitting pretty right now. If you didn't, things are pretty bleak. Which brings us to...

"Resiliency." This is the key word of manufacturing in the age of semiconductor shortages, and one that automotive supplier Dana is fully invested in as industries adapt to a more proactive approach to sourcing components, rather than the purely lean methods that have guided companies like Toyota for the past few decades. A look into Dana's practices by Automotive News illuminates the shift in philosophy:

Dana is sourcing such key commodities as resin, castings, forgings and some electrical components from multiple suppliers, asking suppliers to hold in warehouses a backlog of critical inventory, and building out its software network to better track suppliers, a process Dana hopes to complete this year, [Dana's Craig] Price, [senior vice president of purchasing and supplier development], said.

Sure, Dana may be spending more to settle all this sooner rather than later, but it'll be less expensive for the company in the long run than, say, having to shut down production for a month. Stockpiling every single part won't be a panacea either, which is why "stress testing" is the other jargon of the week:

Automakers cannot afford to abandon the just-in-time system's down-to-the-penny cost consciousness in a business where profit margins are often less than 10 cents on a dollar of revenue.

"The solution cannot be more waste," said Ramzi Hermiz, a former supplier CEO who advises companies. "The objective needs to be how do we build more simplicity, flexibility and speed in the supply chain."

[...]

The answer for many companies will be stress-testing their supply chains to find weaknesses much as banks did after the 2008 subprime crisis, said Tim Thoppil, a partner and head of consulting for the Americas at engineering firm umlaut. Raw materials and parts for electric batteries and motors could be the next crisis spot.

Expensive luxury and sports cars need lithium-ion batteries, too. This is something Porsche would like to remind everyone as it watches manufacturers of more practical, economical and high-volume vehicles snap up all the dang batteries. As Porsche R&D director Michael Steiner told Automotive News Europe:

"We would really like to use high power cells for motorsports and eventually, if proven suitable, for use in performance road cars, but amid this giant transformation that is sweeping the industry, there tends to be little room for special requests," Steiner said. "Most partners are just concentrating on ramping up their production lines at the moment, so our needs come as a second priority at the moment, if not a third."

As a result, Steiner said, smaller brands like Porsche may need to look elsewhere to get access to cells tailored to their demands, including environmental ones.

German news media have reported that Porsche is working with Custom Cells, a startup with sites in Itzehoe and Tuebingen, on specialized cell manufacturing through a joint venture, Cellforce.

Steiner didn't confirm those reports, though he did say that Porsche will likely have to court similar partners to "research, develop and produce in small series high performance cells" and ensure its needs aren't totally ignored.

Honda's North American production operations have been limited since March 22, but the company expects to be firing on all cylinders once again on April 5, according to Reuters.

That's fortunate, because as Automotive News reported yesterday, Honda's had a solid first quarter of 2021 alongside many manufacturers, and wouldn't want factory delays to curb all that momentum:

At American Honda, March volume rebounded 86 percent at the Honda division and 153 percent at Acura, with first-quarter deliveries up 16 percent.

"One year after the global pandemic began to take its toll on the auto industry, it's great to return to form ...," said Dave Gardner, executive vice president of national operations at American Honda.

Now for something that isn't about silicon, or batteries, or shutting down factories because you're not able to get either of those things. Volkswagen had to pay out 340 million euros in fines to the European Union last year for missing its 2020 CO2 targets. This was largely because of its van division. The company is doing its darndest to make sure that doesn't happen again, with a little help from Ford. From Automotive News Europe:

To help reduce CO2 emissions this year, the core medium-size T Models will be split between older and new generation models. The N1 commercial vans like the Transporter will continue to be sixth-generation models, and will remain in the lineup until a Ford-engineered version is introduced under a technology-sharing arrangement. VW has also entered into a pooling agreement with Ford for their N1 related European fleet targets.

A seventh-generation T series will launch this year for M1 vans such as the Multivan. These vehicles will now be built on the group's MQB platform, a lighter architecture engineered for passenger cars that can help reduce CO2 emissions.

You might be thinking "wouldn't it'd be great if Volkswagen had a battery-electric van to ease some of this pressure?" Yes it would! Unfortunately, the ID.Buzz, which will be sold commercially in Europe as well as to private buyers, isn't expected to hit fleets until 2022. That might explain why Volkswagen is taking its time to bring the ID.Buzz to the U.S., waiting until 2023 and forgoing sales to businesses on this side of the pond.

The Surface Transportation and Uniform Relocation Assistance Act enacted on April 2, 1987 allowed states to raise the national speed limit, then at 55 mph, to 65 mph on rural interstate highways. Congress ultimately repealed all federally mandated speed limits with the National Highway System Designation Act of 1995.

I have these steelies on now and they have all this surface rust and look horrendous. But we always get that random cold snap up here in the Northeast in April, usually accompanied with lots of rain, so they should probably stay on until the end of the month. When do you find to be the optimal time for the winter-to-summer transition?