Volkswagen Group has stalled production in Germany, citing an inability to obtain sufficient parts from Ukraine. The automaker reportedly is lacking sufficient electrical components for its Zwickau-Mosel plant and the Dresden-based “Transparent Factory” — both of which are responsible for manufacturing VW and Audi-branded electric vehicles.
While the automaker declined to identify any specific suppliers, it said that Zwickau-Mosel will be down for at least four days as the Dresden facility will only need three days of downtime. That should put them both back online by the end of the week. But that’s hardly a guarantee and problems abound elsewhere, some of which are starting to feel borderline ordinary, as the industry continues reinventing itself.
According to the Financial Times, factory closures will result in 1,200 fewer cars being produced per day. This was said to impact the assembly of VW’s I.D. models coming out of Zwickau. Demand has allegedly been so high that the company is even asking staff to drive combustion vehicles to increase the available supply of battery-driven automobiles.
Earlier on Friday, Volkswagen chief executive Herbert Diess said that it was “too early to assess the impact” of the war in Ukraine on VW’s business. VW had already offered to fly Ukraine-based staff out of the country a few weeks ago, he added.
Rival German carmaker Mercedes-Benz said it did not yet know if it would face the same interruption of supplies from Ukraine. “We are monitoring the situation closely, but it is still too early to assess the impact of this escalation on our business,” it said in a statement. General Motors told the FT on Thursday it had “limited supply chain exposure” to Ukraine.
Although Russia and Ukraine are small markets for Volkswagen, which sold 9 [million] cars globally in 2020, both countries provide raw materials and components that are crucial to the industry’s supply chain. One large auto manufacturer told the Financial Times its employees were trying to work out whether rail deliveries that come via Russia would be disrupted.
Though the industry is treating the possibility of war-time deficits as little more than an extension of the semiconductor shortage that arrived in 2020. As chip manufacturers began issuing pandemic-related restrictions and transitioning to higher-value products, supply chains for the automotive sector dried up faster than a teardrop on Mercury.
Rolling factory closures have become the norm and automakers are becoming less interested in restoring production rates. Instead, they’re starting to examine how to maximize margins on every vehicle sold as output remains critically low.
While I have no doubt that a ground war occurring a few nations away means major implications for supply chains, automakers have been enduring severe component shortages since 2020 and have started discussing the merits of leaner inventories. Many are now publicly musing vast restructuring efforts that would reduce staffing as they transition toward EVs. But this often seems to be more about appeasing investors than ensuring prolonged profitability from the day-to-day business of being an automaker.
CEO Jim Farley recently said that Ford’s vehicles (gas and electric) weren’t achieving the kind of profitability he was comfortable with. He seemed particularly annoyed that the company’s market valuation remained low compared to a smaller, less established rival like Tesla. The proposed solution? Layoffs and finding ways to make more cash by reducing corporate bloat, ideally while manufacturing fewer cars (but more EVs) overall.
“We have too many people, we have too much investment, we have too much complexity and we don’t have expertise in transitioning our assets,” Jim Farley, Ford’s chief executive officer, said at a Wolfe Research auto conference last week “This management team firmly believes that our ICE and BEV portfolios are under-earning.”
Mary Barra suggested something similar for General Motors, with restructuring looking imminent.
“We’ll never go back to the inventory levels that we were in the past,” Barra told Wolfe Research. “In all the tragedy that surrounded COVID, we have learned a lot on how to strengthen our business, run leaner, work with the dealers, use data analytics to make sure dealers are ordering the right vehicle. There are so many elements where we’ve learned to run more efficiently that we’ll never go back from.”
Ford likewise attributed its desire for change to the global response to the pandemic, saying it was also interested in shifting to a direct-to-consumer sales model. However, you might want to keep in mind that these quotes are coming after record-high vehicle prices and record-low inventories. You know, for an industry that likes to criticize Tesla for being different, everyone sure seems to be blindly copying everything it does. Meanwhile, I’ve been wondering when the parade of excuses will stop being enough and people start expecting the industry to take some amount of ownership for the constant production shortfalls.
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