Auto suppliers feel green pressure as automakers get clean

Auto suppliers feel green pressure as automakers get clean


By Nick Carey, Victoria Waldersi and Giulio Beuvacari

TAMworth, England (Reuters) – The auto industry’s drive toward a greener and cleaner future is a treacherous path for companies in a beleaguered supply chain. Only the strong and the smart can survive.

Many car suppliers, already under pressure from hyperinflation and energy prices, say they have no choice but to incur the additional costs of making their components sustainable to meet the automakers’ environmental goals.

Shane Kieran, commercial director at the Autins Group, which has plants in Britain, Sweden and Germany making sound and heat insulation systems for cars.

All major automakers have committed to green goals, and are seeking to purge dirt from their supply chains to satisfy regulators and investors as they transition to electric vehicles (EVs).

BMW, for example, expects all of its battery and many steel and aluminum suppliers to produce materials made using renewable energy, while Volvo targets 25% of recyclable plastics in its cars by 2025.

Accordingly, many suppliers are making significant investments to make their businesses green, from developing recyclable parts to connecting their businesses with renewable energy, according to interviews with more than a dozen players in the industry.

At the same time, many say they have little leeway to raise prices charged by major automakers, who themselves focus on costs as they pay tens of billions of dollars to reinvent themselves for the low-carbon era.

“We use the term sabotage all the time, but it’s much more than a disturbance,” said Joe McCabe, executive director of researcher AutoForecast Solutions. “We’re going to see a real big shake-up in the next five or 10 years in the automotive supply chain.”

READ ALSO :   LeBron James and Draymond Green are part of the new property collection at Pickle Ball

Philadelphia-based AutoForecast compiles auto industry production estimates and advises suppliers on whether requests for quotations (RFQs) they receive from auto manufacturers are based on realistic assumptions of auto production volumes.

“Suppliers are being asked to develop new technologies to support electric vehicles and to invest in a more environmentally friendly supply chain in (high) quantities that we don’t think can be obtained based on actual RFPs,” McCabe added. “But the automakers are also telling suppliers: If you want to be a part of this new green revolution, give me the best price possible so I don’t go to your competitors.”

Huge mission

Automakers are often reluctant to discuss contractual relationships with suppliers.

Mercedes-Benz, which aims to use recyclable materials on a large scale and “green” steel made using renewable energy in its cars, told Reuters it was fully aware that cutting emissions to zero was a “huge task” for suppliers.

It said it plans to achieve this goal collaboratively, including providing training to suppliers or joint research and development.

Volkswagen (ETR :), which is targeting a 30% reduction in carbon dioxide emissions for its cars including its supply chain, said it has a collaborative relationship with suppliers, citing a joint program it created to tackle rising energy prices, without providing details.

Going green is costly for even the largest suppliers, such as the Swiss-American connector maker TE . connection (NYSE:), according to CTO Ralph Clydetke. The company, which is worth about $39 billion, launched its own sustainability campaign in 2020 and is working on recyclable products with automakers including Volkswagen, Volvo and BMW.

“For smaller suppliers, the challenge is more serious,” Clydetke said. Suppliers that are not eligible for sustainability will be excluded from the procurement process.

READ ALSO :   Dollar Resilient Against Fed, Yuan Under Pressure

For Britain’s Autins, which had revenue of around 23 million pounds ($26 million) for the financial year ending September 2021, one part of the green solution is a switch to 100% renewable energy later this year, according to the chief executive. Gareth Kaminsky-Cook speaking at the company’s plant in Tamworth, central England.

This will cost his company several thousand extra pounds a year, he said – the cost of building the infrastructure to connect renewable energy to the grid is passed on to business customers. Eventually, though, those bills will drop.

The publicly traded company also pursues its own green goals to satisfy shareholders.

Kaminski-Cook added that Autins, whose customers include Volkswagen and Jaguar Land Rover, has invested around ยฃ50,000 in developing a recyclable insulating material that should be ready by the end of 2022.

kill our margins

Plastics and rubber components maker Sigit, with annual revenue of about $200 million, spent 10 million euros in 2019-20 on a research center in Turin that developed a recyclable thermoplastic composite bracket that is 90% lighter than its previous metallic part.

CEO Emanuele Boscaglione said supply chain problems that began during the pandemic as well as rising costs “killed our margins” and “created the perfect storm” for the industry.

Boscaglioni added that the Swiss-Italian company has spent three years developing the class and now has its first contract for pickup trucks made by Stylantis, the world’s No. 4 automaker.

โ€œWe try to focus the few resources we have on innovation,โ€ the CEO said. He added, however, that automaker Sigit’s customers haven’t been willing to pay more for new, greener products yet, even luxury brands.

READ ALSO :   Scotiabank appoints Thompson as CEO

Buscaglione says the challenge of passing on the additional costs to customers is “nothing but trivial”.

Suppliers are also feeling the pressure in Germany, Europe’s largest car market.

M. Busch, which makes cast iron parts including brake discs and gearboxes in North Rhine-Westphalia, wants to switch from burning coke to “bio-coke” made from organic waste, using renewable energy and replacing gas to smelt metal with hydrogen, owner Andreas said. Joel.

He added that organic waste is hard to find, and there is not enough infrastructure to fuel hydrogen to meet its needs while renewable energy is still expensive compared to conventional energy.

Gill says automakers only want to work with suppliers that use green energy, leaving him in a bind.

German aluminum supplier Gerd Roeders, owner of GA Roeders, which provides the material for Volkswagen and Continental, wants to switch to a gas-only hydrogen and gas blend, but says government and support for automakers are needed to build green infrastructure.

โ€œFor the supply industry to be innovative, it needs money,โ€ Roeders said. “We feel a little stuck.”

($1 = 1,0004 euros; $1 = 0.8687 pounds)

The Latest

To Top