Skip to main content

Car makers cut reliance on China.

Car makers

Over the past 20 years, China has risen from obscurity to become a global leader in the car parts industry. Its growth was fuelled by European and American carmakers that farmed out the production of an increasing number of their components to China to save costs and establish links with the world’s largest car market. But international groups have now launched a quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers, according to industry executives and supply chain experts. The first is the uncertainty caused by China’s zero Covid-19 policy that forces plants to close at short notice.

«The longer the pandemic stretches, the more uncertainty there is,» Volvo Car boss Jim Rowan said earlier this year when announcing the Geely-backed carmaker was increasing its use of non-Chinese components. But the second is a longer-term concern about a more significant political decoupling in the event of a breakdown in China’s relations with the international community, similar to Russia’s, that could threaten trade. Although most international groups are unlikely to abandon the Chinese market entirely because of its size, they expect the flow of components from the country to plants worldwide to fall over time. Consequently, foreign manufacturers aim to make parts and cars inside China exclusively for use within the country.

This cuts their reliance on Chinese factories for goods sold overseas while retaining a secure local supply chain for their plants inside the country. For example, a quarter of China’s exported car parts are in US plants. A December report from Sheffield Hallam University highlighted the country’s rise as a global supplier over the past two decades. «I don’t think the sourcing is the difficulty. » Ted Mabley, a supply chain consultant at PolarixPartner, said moving away from China «will be looking at a price lift for both labour and material».

This means carmakers must make savings elsewhere, particularly with costs rising in the switch to electric, or risk becoming uncompetitive. However, carmakers are also aiming to be more rigorous in their choice of suppliers as they focus on the resilience of the supply chain and costs to ensure it does not break down. For example, Mazda said it was shifting production of some components made in China to its home market in Japan. Mazda has already asked more than 200 suppliers that use parts made in China to stock up on inventories in case of disruptions.

Japan-based Honda admitted it was considering ways to cut supply chain risks. However, it denied media reports that it was exploring the possibility of building cars and motorcycles with as few China-made parts as possible. The company added that «most of our sourcing in China is for production in China» and «we plan to continue this approach». Supply chain risks are more significant for the German carmakers Mercedes, BMW and, particularly, Volkswagen. The three are so deeply embedded in China that, alongside German chemicals group BASF, they accounted for a third of all European direct investment between 2018 and 2021.

«The Germans are so tethered to China, not only for sourcing but on the customer side too,» said RBC’s Narayan. «We look at the sources nearby, which could also be from European or US suppliers or Mexican suppliers,» he added.

www.sba.tax

Labels:

Comments

Post a Comment

Cloud Bookkeeping

HS2 cost cuts new routes and add delays.

 Trans­port depart­ment offi­cials have begun work on «Project Sil­ver­light» sug­gest­ing the high­speed rail scheme might face four addi­tional years of delay. The planned High Speed 2 rail line faces fur­ther delays of up to four years and more cuts to the project under plans being drawn up by min­is­ters to rein in its bal­loon­ing costs. The extra delays to the coun­try’s biggest infra­struc­ture project would mean that it would not be com­pleted until as late as 2045 — 12 years after ori­gin­ally planned. «This is a func­tion of infla­tion; we are hav­ing to find huge sav­ings because the cost of everything the depart­ment is already doing will have become so much more expens­ive by then,» said one gov­ern­ment offi­cial. In Octo­ber, the FT repor­ted that the Treas­ury had asked HS2’s man­age­ment team to identify poten­tial cuts or «scope reduc­tions» to the high-speed line. Trans­port depart­ment offi­cials have sub­sequently begun work on Project Sil­ver­light aimed at fi...
4 comments
Read more

Doubt on CS's collateral.

  Credit Suisse provided an emergency $140mn loan to Greensill Capital based partly on invoices to companies that deny ever doing the business stated on the documents. The Swiss bank provided the loan in October 2020, less than five months before the collapse of Greensill, a supply chain finance firm that counted former British prime minister David Cameron as a senior adviser. Invoices issued by metals magnate Sanjeev Gupta’s Liberty Commodities and sold to Greensill formed part of the collateral for the loan, according to documents seen by the Financial Times and people familiar with the transaction. Yet several of the parties named on the invoices have told the FT they did no business with Liberty. GFG has consistently denied any wrongdoing. Credit Suisse’s loan had a clause dictating that the collateral value had to be equal to or greater than the $140mn borrowed. The terms of the debt agreement only allowed invoices on Green-sill’s balance sheet to count towards this tally if t...
2 comments
Read more

Tax cut

  Sterling tumbled against the dollar to below $1 . 09 ,  hitting its lowest point since 1985 ,  after UK chancellor Kwasi Kwarteng unveiled a £45bn debt-financed tax-cutting package that sparked a historic increase in borrowing costs .  Kwarteng’s political and economic gamble includes the biggest set of tax cuts for 50 years ,  with the end of the 45p additional rate for the highest earners as well as a sharp reduction in levies on dividends .  But concern over the amount of debt required to finance the tax cuts triggered a frenetic day of trading that raised doubts on whether Britain’s new economic approach was sustainable .  «Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time» . Kwarteng has staked the political fortunes of the Conservative party on the bet that the radical tax cuts and deregulation will raise Britain’s sluggish growth rate to 2 . 5 per cent .  «This is a new appr...
Post a Comment
Read more