7:30 am, October 5, 2024
In the fiercely competitive automotive industry, supply chain disruptions can have widespread and long standing effects.
Think of the shortage of parts after the Japanese earthquake and tsunami in 2011, and more recently the shortage of semi-conductors during and after Covid. Both curtailed auto production in the west for long periods.
On a more local scale, Ineos last week said that it has been caught out by a supplier unable to produce a key component.
The firm has been forced to halt production of its Grenadier, the rugged off-roader modelled after the iconic Land Rover Defender, owing to an unforeseen problem with one of its suppliers.
While Ineos has been tight-lipped about the exact details of the supplier issue, this production halt highlights the delicate nature of modern vehicle manufacturing, where the failure of a single supplier can cause ripples across an entire production line.
For a vehicle as eagerly awaited as the Grenadier, the ramifications are significant, not only for Ineos but for its customers, partners, and investors.
Ineos’ surprising drive into automotive manufacturing
The Grenadier is Ineos’ bold attempt to fill a gap left by the discontinuation of the original Land Rover Defender in 2016.
When Land Rover transformed the Defender into a much more modern, tech-laden SUV, many off-roading enthusiasts mourned the loss of the rugged simplicity that had defined the vehicle for decades.
Ineos sensed an opportunity, especially as its billionaire boss, Sir Jim Ratcliffe, was a self-confessed ‘Landie’ fan.
Despite some seeing the whole foray as a vanity project, Ineos decided to take the plunge with a £600m investment into making cars, starting with a no-nonsense, highly durable off-road vehicle designed for explorers, adventurers, and industry professionals who needed a workhorse, not just a luxury SUV.
The resulting ‘Grenadier’ was named after Ratcliffe’s favourite London pub in Belgrave Square, with the goal of going back to basics, with a body-on-frame construction, lockable differentials, and a stripped-back utilitarian design – all of which paid homage to classic 4x4s of yesteryear.
The launch of the Grenadier was highly anticipated, and despite a few delays — in part due to the Covid-19 pandemic — production started at Ineos’ new facility in Hambach, France (formerly a Smart car production site purchased from Mercedes-Benz) in 2020. The vehicle was set to take on a host of competitors, from Land Rover to Toyota’s Land Cruiser, in the rugged utility vehicle market.
A spanner in the works
For any manufacturer, suppliers form the backbone of production. The automotive industry in particular relies on a complex and vast network of suppliers providing thousands of components that go into each vehicle. Even the slightest disruption from a single supplier can spell trouble.
Unfortunately for Ineos, that’s exactly what has just happened.
Ineos remains tight lipped about the specific details of the supplier issue that has caused the Grenadier production halt, not wanting to make things worse for the supplier in question. All it has said is that the supplier has a ‘cashflow issue’ and makes a ‘critical component’ for the Grenadier.
What’s clear is that it’s a serious enough problem to have caused a complete suspension of the production line. While automotive companies typically have a web of backup suppliers, certain specialized parts or components — particularly those that are unique to the vehicle’s design — can be difficult to replace or source elsewhere.
Some analysts have put two and two together and identified Ricaro as the possible supplier: it makes seats for Ineos and recently filed for bankruptcy.
The impact of hitting the brakes
The sudden halt in production poses several challenges for Ineos.
First and foremost, it delays the delivery of vehicles to customers who have already placed orders.
These customers, many of whom are off-road enthusiasts and professionals, may have counted on receiving their vehicles within a specific timeframe, and any disruption could impact Ineos’ reputation, especially since this is the company’s first foray into the automotive market.
Financially, the halt is a significant blow. Delays in production can lead to increased costs, including storage fees, contractual penalties, and potentially having to renegotiate agreements with suppliers.
Furthermore, any sustained halt in production could impact the revenue streams that Ineos anticipated from the Grenadier project.
The shut down could have broader ramifications in the automotive market. Ineos was positioning itself as a disruptor in the off-road vehicle space, meaning greater competition with established brands like Land Rover and Toyota.
The production halt puts these ambitions on hold, for now at least, as Ineos grapples with supply chain issues and damage control.
How temporary is temporary?
Automotive OEMs often have to deal with supplier woes.
To keep their production lines running, OEMs might look at organising supply chain finance or even taking over a critical supplier in order to keep key parts supplied.
Bigger firms, stung during the Japanese earthquake and tsunami crisis, and more recently Covid, will have second sourcing strategies so as to have some flexibility over where to source from.
That isn’t the case with Ineos Automotive which is a tiny player by global auto industry standards (even if it is part of the massive Ineos group).
As a result it is exposed when a key component struggles, and may itself not have the resources to mount a rescue takeover.
While this has been portrayed as a temporary problem, the question is how long is temporary?
If Recaro can’t get seat assembly back up-and-running then Ineos faces the prospect of having to find a new supplier. That will take time. ‘Temporary’ make run for some time.
The bigger picture: Supply chain vulnerabilities in the automotive industry
Ineos’ supplier problem isn’t an isolated incident, of course.
The global automotive industry has experienced significant supply chain disruptions over the past few years, exacerbated by the Covid-19 pandemic and, more recently, geopolitical factors like the war in Ukraine and rising tensions between global powers.
These disruptions have affected everything from semiconductor chips to raw materials like steel and alluminum.
In Ineos’ case, the disruption serves as a reminder that even the most carefully orchestrated production lines are vulnerable to external shocks.
Automotive manufacturers, especially newcomers like Ineos, need to build resilience into their supply chains, ensuring that they have backup suppliers and alternative manufacturing strategies in place to mitigate risks.
For Ineos, this disruption is a significant hurdle in its effort to establish itself as a serious player in the off-road vehicle market.
The company must now navigate the delicate process of resolving the supplier issue, regaining the confidence of its customers, and ensuring that future production runs are more resilient to such challenges.
Story by David Bailey, senior fellow at the ESRC’s UK in a Changing Europe programme.
