May 26, 2024
Supply Chain stories for the week…
1: Manufacturers face a new wave of Chinese competition
Summary: Chinese manufacturers in many industries have caught up with Western firms and the competition is fierce, even “monstrous.”
Analysis: As Chinese firms become more competitive, it becomes increasingly difficult for international industrial players to exit. established and emerging industrial companies consistently underscore the importance of maintaining a presence in China for research purposes and to tap into its expansive market. ““As an EV maker, if you are not linked to China and you pretend to be the world’s best truck in the EV space, no one’s going to believe you,” said Wen Han.”
2: Dependence on China will last decades
Summary: The CFO of Siemens has stated that China will be part of value chains for decades to come.
Analysis: Interesting that more German companies are being so outspoken on the need to connect and trade with China. This goes against the current political will in the country. Who will win in this? It is likely German industry doesn’t have an option, if China is lost to them, Germany and their businesses will look very different.
3: Defense groups warn of Chinese cotton used in weapons
Summary: Ammunition production is growing due to the Ukraine war, and concern over Chinese “gun cotton” access is becoming a concern. The head of Rhienmetall said China supplies over 70% of its “cotton linters.”
Analysis: There is a shortage of “gun cotton,” with China controlling half the world’s production, with Belgium, Germany, and Sweden accounting as top importers. Where does this cotton come from in China? Most likely the Western part of the country, which is under US sanctions. So sanctioned goods are being used by European arms manufacturers to produce weapons and materiel to be used in Ukraine - huh? Will we see the US Congress call in EU leadership on this? Likely not.
4: TW chip supply chains are moving overseas with the shift
Summary: TW companies that work in the supply chains are following TSMC and other company’s overseas investments and adding to ecosystems and supply chains around the world. This also helps buttress the companies against a slowing Chinese economy and potential geopolitical shocks and concerns.
Analysis: Companies are seeking new geographical and non-TSMC growth, which they are trying to do by piggybacking off of major players such as TSMC and Samsung, and also doing some derisking along the way.
5: Unionization in the auto industry is a double edge sword
Summary: VW and Toyota are targets for unions as they try to gain more power and leverage in the auto industry. The UAW is going after new factories and companies that are traditionally non-unionized labor. Their recent successes have gained notice among both workers and companies.
Analysis: The benefits of worker unionization have been debated for over 100 years. The discussion concerns what a union can do for me vs. being a non-union worker. While competitive in the US, the Big Three are losing globally to the Japanese, Germans, and now the Chinese. There is no real EV plan in the US, and union factories are driving up costs in both the short-term and long-term (as EVs are not yet profitable in the US, this is a problem). That’s ok if there is lim
ited competition (which tariffs and restrictions are trying to do), and you can use your cash cows (SUVs, etc.) to build out your manufacturing and weather the ups and downs. But longer term there doesn’t seem to be a plan for the auto industry as ICE cars are a sunset industry.