• ITVI.USA
    15,337.560
    69.720
    0.5%
  • OTRI.USA
    25.420
    -0.170
    -0.7%
  • OTVI.USA
    15,330.100
    75.130
    0.5%
  • TLT.USA
    2.650
    -0.010
    -0.4%
  • TSTOPVRPM.ATLPHL
    2.900
    -0.030
    -1%
  • TSTOPVRPM.CHIATL
    3.160
    -0.090
    -2.8%
  • TSTOPVRPM.DALLAX
    1.440
    0.000
    0%
  • TSTOPVRPM.LAXDAL
    2.820
    -0.010
    -0.4%
  • TSTOPVRPM.PHLCHI
    2.160
    -0.030
    -1.4%
  • TSTOPVRPM.LAXSEA
    3.400
    -0.020
    -0.6%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
  • ITVI.USA
    15,337.560
    69.720
    0.5%
  • OTRI.USA
    25.420
    -0.170
    -0.7%
  • OTVI.USA
    15,330.100
    75.130
    0.5%
  • TLT.USA
    2.650
    -0.010
    -0.4%
  • TSTOPVRPM.ATLPHL
    2.900
    -0.030
    -1%
  • TSTOPVRPM.CHIATL
    3.160
    -0.090
    -2.8%
  • TSTOPVRPM.DALLAX
    1.440
    0.000
    0%
  • TSTOPVRPM.LAXDAL
    2.820
    -0.010
    -0.4%
  • TSTOPVRPM.PHLCHI
    2.160
    -0.030
    -1.4%
  • TSTOPVRPM.LAXSEA
    3.400
    -0.020
    -0.6%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
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Transmission: Taiwan chipmakers promise to prioritize auto industry needs

Thank goodness it’s Friday! Here’s what’s cookin’ today in Transmission:

  • Auto industry sighs in relief as calls for chip prioritization are heard
  • Arrival’s innovative assembly line strategy breaks the status quo
  • Industry news

Auto industry sighs in relief as calls for chip prioritization are heard

On Tuesday, automakers were calling on the Taiwanese government to persuade Taiwan chip manufacturers to reallocate production capacity for the auto industry. It looks like those pleas for help were heard as Taiwan Semiconductor Manufacturing Co. (TSMC) is expediting auto-related products and shifting attention to address the growing concern of the global chip shortage.

“The automotive supply chain is long and complex, and we have worked with our automotive customers and identified their critical needs,” said TSMC in a public statement. “TSMC is currently expediting these critical automotive products through our wafer fabs. While our capacity is fully utilized with demand from every sector, TSMC is reallocating our wafer capacity to support the worldwide automotive industry.” 

This is excellent news for automakers everywhere. It’s easier said than done to just “increase capacity” but it looks like the world’s largest contract chip manufacturer is willing to do its best to prioritize the automotive industry, even if auto chips only account for 3% of sales. In December, chip orders increased by 27% from the previous quarter as automakers really honed in on restocking low inventory at dealerships. 

For now though, OEMs are trimming down production at assembly plants. Rather than halting production altogether, companies are pushing up scheduled days off while the chip supply catches up to demand. Just recently, Volkswagen announced that it would be reducing hours at component factories in Europe as a precautionary measure. This gives the German automaker flexibility to make production adjustments as needed if supply is strengthened or weakened over the course of the next few weeks. How long until this issue is resolved? IHS Markit predicts that supply will ease within the next two to three months.


Arrival’s innovative assembly line strategy breaks the status quo 

Legacy automakers have been using the same assembly approach for nearly a century: assembly lines. A car starts at point A and ends at point Z. Massive factories have to be built to support this linear model and that requires heavy investment. (Even Tesla uses this strategy.) Arrival, a U.K.-based EV company, has come up with a different solution based on smaller factories that require less investment and are quicker to build.

The most important aspect of Arrival’s assembly process lies with one simple principle: The vehicle and the factory are built with each other in mind. The composite material that Arrival uses eliminates the need for stamping panels or painting vehicles. (Both of these shops require a lot of space.) No welding is needed, since adhesives and mechanical fixings are used to put the vehicle together. And instead of a standard linear flow, assembly is broken up into cell clusters, with robotics optimized to perform an operation. Once a part is complete, it moves to the next cell via mobile robot. 

Distributed manufacturing plays a big role in Arrival’s strategy. At the end of 2020, Arrival chose Rock Hill, South Carolina, to become home to the first assembly plant in the United States, costing roughly $46 million. To provide context, it cost GM $2 billion to renovate its Spring Hill, Tennessee, plant with EV infrastructure. All Arrival has to do is purchase or lease a warehouse and install equipment – and within six months the microfactory is up and running. Instead of putting a massive factory in one city, the automaker can build multiple smaller factories scattered in local markets at a fraction of the cost. This smaller cost of investment upfront allows for profit to be realized much faster than a large, traditional plant

Why aren’t others following in Arrival’s footsteps? There are a few reasons why this manufacturing strategy hasn’t caught on. For starters, Arrival hasn’t proved itself just yet. It’s a startup bringing innovation and excitement to the EV realm but hasn’t actually hit the ground running stateside. The other major factor at play is infrastructure. Legacy automakers have been using massive factories to build cars for a while now. It makes more sense to renovate and continue reusing current infrastructure because of the heavy investment required to build it.

The gist: While the microfactories cost less upfront to build than, say, one of Tesla’s gigafactories, multiple locations would mean that logistics would look different. Inbound transportation costs would increase since more trucks would be on the road driving to multiple factories. Feeding more assembly sites with on-time inventory delivery would also be more complex than delivering to a centralized location. On the flip side, outbound transportation would cost less since each factory serves a local market. There’s no need to transport finished products across the country since the delivery location would be relatively close by.

At this point, I think Arrival just needs to start pumping out vehicles. The innovative approach to a century-old assembly design could change the way vehicles are produced as long as there is proof of concept. It already has orders from transportation companies all over, including UPS, which just ordered 10,000 delivery vans expected to be on the road by 2022.


Industry news:

  • Navistar is launching a zero-emission long-haul semitruck and GM will supply the company with Hydrotec fuel cells. GM is working toward an emissions-free future and already has partnerships in place with both Honda and Nikola. Navistar’s semi will have a range of 500 miles and refuel in less than 15 minutes. J.B. Hunt Transport Services will pilot the semi starting in 2022.
  • Back in the beginning of December, I covered Cadillac’s plan to revamp dealerships with a full EV upgrade. The automaker gave dealerships the opportunity to choose whether they wanted to be on board. A buyout in the ballpark of $200,000 was offered to dealers that declined the upgrades, while dealers that opted in were promised an EV renovation fully paid for by Cadillac. As of Wednesday, Cadillac revealed that dealership prep will start next month in preparation for the Cadillac Lyriq launch.
  • Tesla’s been around since 2003 and 2020, the year of turmoil for the industry, was the year it finally saw an annual profit! The automaker’s Q4 net income came in around $270 million. Although a large portion of income generated in Q4 was through credit sales, Zach Kirkhorn, Tesla’s CFO, doesn’t think the company will rely on this sales tactic in the long term. Tesla delivered 499,647 vehicles, just 353 deliveries shy of its 2020 goal of 500,000 deliveries.

Like what you just read? Join the community! Sign up from Transmission and get insight, news and analysis regarding the automotive supply chain: https://freightwaves.com/transmission

Clay Katzman

Clay is a supply chain analyst with a specialized focus on the automotive industry. He graduated from the University of Tennessee-Chattanooga and joined the Freightwaves team in the fall of 2020. Prior to Freightwaves, he worked for a marketing agency while finishing up his degree in business analytics.