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Transmission: You shall not pass!

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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.

You shall not pass!

Protestors blocking ports and rail ramps in the Mexican state of Michoacán are disrupting Kansas City Southern de Mexico’s operations and damaging Mexico’s economy. Protest groups, largely made up of teachers and students, are demanding payment of scholarships, bonuses and jobs for recent graduates. 

(Map: Kansas City Southern’s network throughout the U.S and Mexico.)

The blockades are affecting railways connecting the Port of Lázaro Cárdenas, the second largest port in Mexico behind the Port of Manzanillo, to the rest of Mexico and indeed the rest of North America. This port, which lies along the Pacific coast of Mexico, is a key node in automotive freight networks. Delays at the port and at border crossings in Laredo have stretched KSU’s terminal dwell times to year-to-date highs. 

(Chart: Freightwaves SONAR. Average rail terminal dwell time for Kansas City Southern.)

KCS, the provider of rail service for Michoacán, has seen major delays in getting shipments out on time to suppliers, causing a huge blow to the automotive supply chain. Oscar del Cueto, CEO of KCS de Mexico, stated that nearly 5,000 containers have been held up in the port in part to these blockades. Typically, six trains leave the port daily, each train carrying as much freight as 150 trucks. To combat these delays, KCSM is having workers load freight onto 900 trucks daily in order to keep freight moving. And with no other card to play, KCSM has seen rail terminal dwell time increase to 25 hours, a six hour increase from the months prior to protests. 

When will it end? I wish I could tell you. Protests began in late August and were thought to be resolved the following month; however, the riots resumed once again in the beginning of October. With no end in sight, the CEO of Ford Mexico has called the government to quash these protests once and for all. Mexican officials have estimated that the Mexican economy is losing nearly $18 million dollars every day these riots continue. 

Beyond that, Kansas City Southern is making investments to improve network fluidity: last week construction crews broke ground on KSU’s new crossborder rail bridge in Laredo. The new bridge will be adjacent to the current International Bridge and should “make existing train traffic safer, more secure, more fluid, reduce traffic congestion in downtown Laredo and allow for growth in the future,” according to a KCS spokesperson.

The growing concern with the future of EVs

In comparison to internal combustion engines, EVs have approximately 90% fewer moving parts. And while this speeds up manufacturing, it also raises a concern for OEM and suppliers: fewer jobs.

Speaking at the Reuters Automotive Summit, new Ford CEO Jim Farley, addressed the possibility of Ford manufacturing its own battery cell‒ a surprise to many considering the previous CEO believed that shouldn’t be a primary focus for Ford.

Farley believes that although Ford building its own batteries would require more investment, it would create more jobs. 

“We do have to solve for the reality that when electrification becomes 25 percent or 50 percent of our industry in the coming years, what are we going to do about the jobs?” Farley said. “One of the obvious choices is going into cell production.”

While Farley is concerned about the potential decrease in jobs available, Ford currently outsources battery cells, a more affordable option than in-house manufacturing (in comparison, Tesla and GM have spent billions in developing their own manufacturing plants). 

The Gist: Employment concerns are already top of mind when considering the rise of EVs. Cell manufacturing requires heavy investment up front, but OEMs may be able to combat the problem of unemployment through in-house manufacturing of battery cells. That still doesn’t solve the problem for automotive supplier networks, who will be called upon to produce far fewer parts.

VW expands existing Silao facility 

(Photo: Volkswagen. The assembly plant in Silao.)

Volkwagen is expanding production in the existing assembly plant in Silao, Mexico. The German automaker will invest $233.5 million into a new engine line, EA211. This engine line is already carried in Europe and is expected to be introduced to the U.S in the new Jetta hybrid.

“With today’s investment announcement, we reaffirm our commitment to continue growing in Guanajuato and to continue trusting Mexico as a safe place to invest,” Steffen Reiche, president of Volkswagen’s Mexico unit, said Thursday. The expansion will see plant capacity increase by 75% and could add as many as 1,000 new jobs. 

The Volkswagen investment signals that Mexico’s automotive growth story is far from over and that European manufacturers are increasingly willing to build complex hybrid vehicles in the country. Significant capital expenditures to expand and revamp existing production facilities suggest that despite occasional supply chain issues—whether it’s congestion at border crossings or blockaded rails—the increasingly integrated North American automotive supply chain is working for OEMs. 

Industry News

  • Over the weekend, Elon Musk tested positive for COVID-19. Or did he? The CEO of Tesla took the test four times and received mixed results (2 negative and two positive tests).
  • Volkswagen has announced that they’re planning on doubling investment into their EV research and development. The German company is planning to spend $86 billion over the next 5 years.
  • Ford is adding an electric alternative to their Transit lineup. The E-transit will be completely powered by an electric motor, yet still boasts the performance of its ICE equivalent. 
  • If you haven’t seen Volvo’s insane crash simulation, you’re missing out. Vehicles from their lineup are dropped from 100 feet to simulate intense vehicle accidents, allowing first responders to practice rescuing potential drivers in the safest, most efficient way possible. Click here to watch the video.

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