Transmission: USMCA makes crossborder fluidity more important than ever

Border accessibility needs to be prioritized since suppliers and OEMs have to transport more parts than ever before to meet exemption requirements‒and that’s exactly what is happening.

This goes without saying, but just like the trucking sector, railroads took a hit during COVID-19. However, back in August, vehicle and parts carload volumes mounted the steepest recovery of any commodity class.

• Down in Laredo, TX, a new railroad project, led by Kansas City Southern, is underway that will increase safety and fluidity between the border movement.
• A new 183-acre rail port is being built northwest of Laredo, in San Angelo. This will serve as a key hub connecting Mexico and the US.
• Up in Detroit, The Gordie Howe Bridge, a $4.4 billion project, is projected to be complete by 2024 with the goal of speeding up border crossings.

All three of these projects will increase freight efficiency, crossborder volumes and connectivity throughout the extensive automotive supply chain. 

Another notable USMCA clause mandates that 40% to 45% of laborers who assemble vehicles must be paid at least $16 an hour‒a cause for celebration for auto workers across Mexico. Currently, the country is prime real estate for manufacturing in part to significantly lower wages. But with this mandated raise, the playing field has been leveled. 

Will manufacturers relocate to avoid the increased costs? While this possibility does exist, it’s unlikely to unfold thanks to the complex automotive freight network that’s already in place throughout Canada, the US, and Mexico. For example, Volkswagen, who already has an established network, recently announced an assembly plant expansion in Silao, which will see capacity increase by 75% (covered in Tuesday’s edition of Transmission). If any relocation happens, there’s a good chance you’ll see operations pick up in the US to avoid transportation costs from shipping freight across Mexico. 

Korea on strike

GM is experiencing a recurring headache. Since October 30th, GM workers in South Korea have been participating in daily strikes to bring attention to wage freezes from the previous strike back in 2018. Steve Kiefer, president of GM’s international operations, believes that by the end of this week, the company could lose up to 20,000 cars in lost production. 

GM, growing frustrated with the continuation of these protests and steady production declines, has threatened to move manufacturing elsewhere, including to South Korea’s neighbor China. GM already produces approximately 5 million vehicles each year in China and with continual strikes, we could see this number rise if relocation occurs. 

One more thought: China is already home to the largest EV population on the planet. And with EV production on the rise, it could make GM’s distribution more affordable if assembly operations were already located within China. 

GM isn’t the only company experiencing worker unrest: Kia Motors is starting to struggle as well. Unionized workers are attempting a partial labor strike on November 24th as the company plans to start producing more EVs. Workers are demanding long-term job security since EVs require about 30% less labor than internal combustion vehicles.

This prompts the question: could we see a rise in labor unrest and militancy from autoworkers unions as EV production grows? Simply put, electric vehicles are easier to assemble. There are 90% fewer moving parts involved in the engine. And, as mentioned above, there’s less labor involved in the production process. Those facts foreshadow a potential future of conflict between auto companies and their assembly workers.

Hyundai sued over EV battery failure

Hyundai is being sued by 200 people over a series battery malfunctions that caused fires. The failed batteries are also used by GM, which recently recalled over 70,000 cars due to this complication. The battery supplier, LG Chem Ltd, is working with both Hyundai and GM to solve the issue. Analysts from the Ministry of Public Safety, South Korea’s safety agency, are looking into the matter and estimate that these lawsuits could cost both LG Chem and Hyundai $540 million in vehicle and battery recalls. 

Aside from GM and Hyundai, Tesla has also seen issues with battery complications. In 2019, Tesla was investigated by the National Highway Traffic and Safety Administration (NHTSA) after  numerous reported incidents of the Model S and Model X catching fire surfaced. The flaw that NHTSA probed involved Tesla’s battery management software. 

We could see a decrease in demand for EVs if battery malfunctions aren’t resolved in the near future. However, researchers and suppliers have an opportunity to get it right since EV adoption is still in the early stages. 

Plenty of research and development has been poured into electric vehicles as companies look to a more sustainable future, one with cleaner transportation. Production costs have decreased, allowing more affordable options for consumers. Trip range has been increasing as the years have passed. The number of charging stations has been steadily growing. A lot of improvement has been made to ensure a future with low-carbon emissions, but there’s still plenty of work to be done.

Industry News

• Arrival, a fast-growing startup producing electric vans and buses, plans a public offering on Nasdaq that’ll bring its valuation up to $5.4 billion. Arrival’s aggressive weight-cutting strategy lowers battery cell costs, allowing its batteries to compete at different price points. 
• Port Laredo saw trucking crossings increase by 5% this October. This is the second month in a row that crossings increased y/y, and production recovery could be the lead cause.
• GM is planning to sell its own car insurance. GM believes it can set rates that reward safe drivers by tracking driver data, such as car speeds, stops, and other factors.
• Thyssenkrupp will cut another 5,000 jobs to account for this year’s $1.9 billion operating loss. The layoffs would follow the 6,000 jobs the supplier eliminated last year and could lead to renewed conflict with the labor representations on Thyssenkrupp’s board.

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