This is Transmission, a twice-weekly newsletter built to chronicle the seismic shift in auto supplier networks as the industry goes cross-border and electric.
GM to Cadillac dealers: upgrade to sell EVs or get bought out
General Motors is not playing games when it comes to EV expansions. The Detroit automaker has invested $27 billion in EV development and is shooting to have an all-electric lineup by 2030. GM’s next move? Offering buyouts for Cadillac dealers who don’t want to invest in the necessary EV upgrades.
In order to become leaders in the EV sector, GM is looking toward dealership renovation. As the company pushes for electric vehicle adoption, it recognizes that not all dealerships want to invest in EVs. Cadillac is set to lead to the charge for GM’s advance to become a global leader in EV sales. GM reports that it could cost $200,000 for each dealership to invest in chargers, tooling, and training.
Out of the 880 Cadillac dealerships across the nation, 150 have accepted buyouts. David Butler, chairman of Cadillac’s national dealer council, stated that the buyouts provide a way out of their agreements with GM if they don’t want to participate in GM’s EV investment. Why wouldn’t they want to participate in the EV push? A large portion of these dealers are located in rural areas, and may not share the same vision as GM. Buyouts were based on dealership sales and performance and ranged from $300,000 to more than $1 million.
Back in 2016, GM offered dealerships a buyout option in case they didn’t want to move forward with upgrading salerooms and the new incentive programs that GM was unveiling. General Motors wanted to reduce the size of inventory carried on lots if the dealership wasn’t selling enough vehicles. The buyouts offered were lower than what’s been offered this year, with buyouts topping out at $180,00.
The stark contrast between these two events points back to GM’s desire to be the No. 1 seller of EVs.
Not only are the buyouts higher than in 2016, but the goal is different. Before, GM was ensuring that the dealers with the most sales had adequate inventory to match demand. Now, while they still care about the sale of combustion vehicles, they’re preparing for a shift in EV influx. GM knows they can sell EVs like lemonade on a hot summer day. But in order to do so, dealers need to be equipped with the tools to succeed.
Chip shortage delaying production in China
Volkswagen’s manufacturing in China is encountering a chip shortage and the culprit is something we’re all too familiar with—the coronavirus pandemic. Chips, primarily produced in Europe, are heavily used in vehicles, enabling drivers with features such as computer management of engines and better gas mileage.
BYD Auto Co., a Chinese car manufacturer, stated in a report, that although the chip shortage will present production delays in the coming future, companies have enough margin for external supply. FAW Volkswagen and SAIC Volkswagen are both experiencing the chip shortage, disrupting production into early 2021 The production halts will definitely slow down the flow of vehicles to dealers, increasing the pressure on VW to meet consumer demand.
Chip manufacturers across the globe are raising prices due to an increase in cost of materials used in production. Dutch automotive chip supplier NXP Semiconductors addressed customers via letter on Nov. 26 stating, “To address the unforeseen increase in costs from our suppliers, we reluctantly must raise pricing on all products.”
Volkswagen blows other automakers out of the water when it comes to car sales. China accounts for 28% of worldwide auto production this year, with VW being China’s largest car manufacturer. This issue will have short-term effects on both local and international car markets, according to a senior industry official who declined to be named.
Continental, a major German auto supplier, indicated that the bottleneck could last into Q1 of 2021 with required additional volumes not being ready for another six to nine months. Volkwagen and other manufacturers are bracing for the halt in production by coordinating proper countermeasures with suppliers.
This pandemic-induced shortage isn’t the first of its kind. Chevrolet experienced a shortage of components that halted production of the Corvette for a week back in October. According to United Auto Workers officials, GM had to airlift supplies to one of its truck manufacturing facilities amidst a shortage of components back in February.
Production shutdowns, government lockdowns, and manufacturing shortages: what more can the pandemic throw at the automotive supply chain? This chip shortage arrives at the most inconvenient of times as auto manufacturers battle a high demand for vehicles. The auto industry is still recovering from the pandemic shutdowns that took place in the late spring and component bottlenecks are only delaying the recovery process.
Government ICE bans fueling EV adoption
There still is a lot of R&D to be done before EVs reach mainstream adoption, but policymakers are itching to do their share. Automakers are partnering with charging companies to build out charging infrastructure. Heavy battery research is allowing manufacturers to lower costs of production. To top all this off, governments are stepping in to regulate transportation to help build a sustainable society built on low emissions and clean energy.
Volvo’s CEO, Håkan Samuelsson, welcomes the idea of banning ICE vehicles sales instead of relying on incentives. In a recent speech, Samuelsson stated, “While temporary incentives can help encourage industry to develop in the right way, it could be more efficient for governments to set a clear agenda towards an electric future.” Similarly to GM, Volvo plans on having an all-electric fleet by 2030.
The idea of government regulation is sweeping the globe. Nationwide bans on internal combustion engines are a growing trend, forcing analysts to revise their EV adoption curves. UK recently announced that the country is banning new ICE sales in 2030. Other major auto markets like Japan and China are implementing bans in the mid-2030s. Like a snowball rolling down a hill, this policy strategy will likely gain momentum. As more countries create policies that ban ICE vehicles, the faster EV adoption comes to fruition.
On the home front, California leads the way in electric vehicle sales. To the surprise of no one, the state has implemented a ZEV (Zero Emission Vehicle) mandate that bans the sale of new combustion vehicles in 2035. New York is looking into regulating ICE sales and, like California, they plan on doing so in 2035.
Industry News
- In other pandemic-related production halts, the reintroduction of the Ford Bronco has been delayed to the summer of 2021.
- Audi boosted its budget for electromobility to approx. $18 billion, which comes on the heels of VW’s plans to increase EV expenditure to $86 billion.
- For all you Tony Hawk fans… Hyundai has rolled out a skateboard-esque EV powertrain to sit under its future fleet.
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