The German automotive industry could stand still in the energy crisis

Germany’s big automakers may have secured their own energy supplies, but thousands of small suppliers facing pressure from rising bills risk disrupting production over the winter.

A growing number of suppliers are asking industry to renegotiate contracts to include energy clauses so they can meet the cost of rising bills.

Top automakers BMW, Volkswagen and Mercedes-Benz have all said their own energy supplies are secure – but if their supplier network fails, their production lines could grind to a halt.

“When we can’t build a car because of a missing part, it hits us all,” said Geng Wu, head of corporate purchasing at Volkswagen, last week.

With energy costs rising tenfold and two weeks to settle on an energy contract that goes into effect on January 1, Kron Solingen, a maker of molded parts and plastics and supplier to the auto and electronics industries, is trying to renegotiate contracts and runs out of time.

“We’re asking for help on raw material costs, on inflation clauses – but the red line is energy costs. If the customers don’t help, we can’t go on … we’ll cancel the contracts ourselves,” sales director Christian Hofmann told Reuters.

The 112-year-old company, whose customers are mostly larger suppliers in the chain like Bosch, is busy calculating exactly how much electricity goes into each of its products to help with customer negotiations and determine what it could produce with less electricity said Hofman.

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

Volkswagen said it was in close talks with its suppliers about joint solutions.

“Our primary goal is to maintain production,” said a spokesman.

The German government has yet to implement its small business energy bill relief package, which this year would see a one-off payment equal to a month’s gas bill and introduce a mechanism to cap prices from March.

While contracts in the automotive supply chain in Germany often contain clauses that adjust prices to raw material costs, energy clauses are much rarer. 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 smaller suppliers would not have enough liquidity to pay the energy bills that can take up to four to five months to settle, said Max Schumacher, chairman of the Association of German Foundries.

Automakers and their key suppliers are themselves struggling with higher costs and ongoing semiconductor shortages, but have largely met financial targets by passing the costs on to customers through price increases.

Some have said in recent weeks they could source from suppliers in other countries with more stable energy supplies.

Soplast, a Portuguese auto parts supplier, said it was receiving more than usual requests for quotations from German automakers, who were increasingly interested in knowing their energy mix.

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

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

“It’s a big hassle for an automaker,” he said, adding that his company only has energy clauses with a few key suppliers.

Suppliers that already have factories in multiple locations expect to move more energy-intensive production offshore in the long term, said Christian Hennerkes, managing director of a manufacturer of battery thermal protection with factories in Asia, Europe and the US.

Hennerkes company Von Roll, which supplies battery joint venture ACC – a joint venture between Mercedes-Benz, Stellantis and TotalEnergies – has managed to negotiate energy costs in some of its contracts. The German automotive industry could stand still in the energy crisis

Fry Electronics Team

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