Automobile

German car industry baulks at supplier demands over energy hikes

While contracts in the automotive supply chain in Germany often include clauses that adapt prices according to 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 on their margins, the production process and their energy contracts.

Even then, many smaller suppliers do not have enough liquidity to be able to pay energy bills for the 4-5 months it can take for invoices to be paid, said Max Schumacher, head of the Association for German Foundries.

“There are no good options,” Schumacher said.

Automakers and their main suppliers are themselves battling with higher costs and ongoing semiconductor shortages but have been able to largely stick with financial goals by passing on costs to customers via price hikes.

Some have said in recent weeks they could source from suppliers in other countries with more stable energy supply to keep their production secure.

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

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

Even for an item as small as a screw, automakers may need to run new crash tests on cars to ensure the component’s quality.

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

Suppliers who already have factories in multiple locations are expecting to move more energy-intensive production abroad in the long-term, said Christian Hennerkes, CEO of a producer of thermal protection for batteries with factories in Asia, Europe and the United States.

Hennerkes’ company Von Roll, which supplies battery joint venture ACC – a joint venture between Mercedes, Stellantis and TotalEnergies – has managed to negotiate energy costs into some of its contracts.

“Automakers were not willing to do this in the past, but they are now, if only for a limited period of time… it’s not in their interests for their supplier network to collapse,” Hennerkes said.

Von Roll is now negotiating with its workers’ council to add extra shifts and produce as much as possible before a new energy contract kicks in next year, the CEO added.

“These energy price increases are long-term,” he said. “Short-term assistance from the government is only buying us time … this is not a wildfire, it’s a drought.”

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