German auto industry balks at supplier demands for energy hikes By Reuters

By Victoria Waldersee

WOLFSBURG, Germany (Reuters) – Germany’s giant automakers may have secured their own energy supplies, but thousands of smaller suppliers facing the pressure of high bills risk disrupting production over winter.

More and more suppliers are asking the industry to renegotiate contracts to include energy clauses so that they can cover the cost of rising bills.

Major automakers BMW, Volkswagen (ETR:) and Mercedes-Benz have all said their own energy supplies are secure, but if their supplier network fails, their production lines could come to a screeching halt.

“If we can’t build a car because of a missing part, it affects us all,” Geng Wu, head of group purchasing at Volkswagen, said at a supplier conference in Wolfsburg this week.

Faced with a tenfold increase in energy costs and two weeks to commit to an energy contract that will take effect on January 1, Kron Solingen, a manufacturer of molded metals and plastics and supplier to the automotive and electronics industries , is trying to renegotiate contracts and is running out of time.

“We’re asking for help with raw material costs, for inflation clauses – but the red line is energy costs. If customers don’t contribute to those, we can’t. not continue … we will cancel the contracts ourselves,” sales manager Christian Hofmann told Reuters.

The 112-year-old company, whose customers are mostly larger suppliers in the chain like Bosch, is busy calculating precisely the amount of electricity going into each of its products to facilitate negotiations with customers and establish this that it could produce with less energy, Hofmann said. .

Bosch declined to comment on contract negotiations, as did BMW. Mercedes-Benz did not respond to a request for comment.

Volkswagen said it was in close talks with its suppliers on shared solutions, but could not share details.

“Our main objective is to maintain production and avoid negative impacts on business operations,” a spokesperson said.

The German government has yet to implement its planned relief plan for small business energy bills, which would grant a one-time payment worth one month’s gas bill this year and implement a mechanism to limit prices from March.

‘NO GOOD OPTIONS’

While automotive supply chain contracts in Germany often include price adjustment clauses based on the cost of raw materials, energy clauses are much less common. They can be problematic because they are complicated to calculate and require suppliers to share details about their margins, production process and energy contracts.

Even then, many small suppliers don’t have enough cash to pay energy bills for the 4-5 months it takes to pay the bills, said Max Schumacher, director of the Association of German Foundries.

“There are no good options,” Schumacher said.

Automakers and their major suppliers are themselves grappling with higher costs and continued semiconductor shortages, but have been able to largely meet their financial targets by passing the costs on to customers via price hikes. .

Some have said in recent weeks that they may source from suppliers in other countries with more stable energy supplies to keep their production safe.

Soplast, a Portuguese car supplier, said it is receiving higher-than-usual requests for quotes from German automakers, which are increasingly interested in knowing their energy mix.

Yet in the automotive industry, establishing a new supplier can take at least six months, said Mauricio Morales, senior purchasing manager at Wuerth Industrie Service – one of the world’s largest suppliers of screws, nuts and bolts. bolts to automakers.

Even for something as small as a screw, automakers may need to re-crash test cars to ensure the quality of the component.

“At a car manufacturer, it’s a lot of effort,” he said, adding that his company only had energy clauses with a few major suppliers.

Suppliers that already have factories at multiple sites expect to move more energy-intensive production overseas in the long term, said Christian Hennerkes, managing director of a battery thermal protection producer with factories in Asia, China. Europe and the United States.

Hennerkes’ company Von Roll, which supplies the ACC battery joint venture – a joint venture between Mercedes-Benz, Stellantis and TotalEnergies – has successfully negotiated energy costs in some of its contracts.

“Automakers weren’t willing to do this in the past, but they are doing it now, if only for a limited time…it’s not in their interest for their supplier network to collapse “, said Hennerkes.

Von Roll is currently negotiating with its works council to add additional shifts and produce as much as possible before the start of a new energy contract next year, the chief executive added.

“These energy price increases are long-term,” he said. “The government’s short-term aid is just buying us time…it’s not a wildfire, it’s a drought.”

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