Manufacturing Matters- Tuesday Top-Up 2

23 July 2024

Recent key developments in MAKE│NZ

• Not everybody has got the time to visit our MAKE│NZ website regularly. For those of you who use LinkedIn as your primary professional network, we’ve now also set up a closed Group there: https://www.linkedin.com/groups/14471541/

• As mentioned last week, our Production Managers’ Working Groups are going strong. This has led to a suggestion that we set up a parallel working group for engineers involved in design. It can be challenging to meet the demands of customers and wider stakeholders, for example those with environmental concerns, as well as those from regulators, while at the same time designing products that are easy to manufacture. The tension between what the customer/user really wants, what’s considered to be an innovative and exciting technical design, and ‘design for profit’, can be hard to master – just think of the recent trend to manage pretty much all peripheral operations in modern cars through touchscreens…
If you are a design engineer and interested in joining such a group, send us an email:

dieter@makenz.org

• Speaking about design for ‘what the customer really wants’, at MAKE│NZ we are equally keen to improve our offer to you. You’ll get a chance to tell us about what ‘better’ would look like HERE and we’ll also put a link on our LinkedIn page.

Recent key developments in New Zealand

• Most of you will be aware of the BNZ – BusinessNZ Performance of Manufacturing Index (PMI). It’s the only monthly economic survey of manufacturing activity and is regarded by many as a key indicator of how well manufacturing is doing in New Zealand at any given time. Right now, the PMI is painting a very bleak picture …

… with the only piece of good news being that we’re doing somewhat better in the South Island.
However, if this doesn’t coincide with your own experience, you may not be the only one. Our own feedback from MAKE│NZ members – by no means a statistically valid random survey – doesn’t indicate the same tough conditions exist for everyone. And the picture painted by the PMI has to be taken with a grain of salt. It is based on voluntary contribution, rather than random sampling, and has a strong Upper-North-Island bias, with well over 50% of respondents, and also a strong small-firm bias, with only about a quarter of respondents employing more than 50 people. So, if your company is ‘bucking the trend’, well done – and, again, you’re probably and fortunately not the only one.

Recent key developments in the World

• Varta Batteries is a household name, even in New Zealand. The company has been making batteries since 1887, but got into financial difficulties in the 1990s. After a change in ownership, the company’s performance improved, and in early 2021 its share price peaked at €181, only to get into serious strife again after losing a key customer (Apple) in mid-2023, when the share price dropped to €20. Ever since then, VARTA has been in a perilous financial position, most recently resulting in its share price dropping to penny stocks level after the company announced that it is seeking legal protection under the German equivalent of the US Chapter 11 Bankruptcy Code. Now there are reports -confirmed by Porsche – that Porsche might acquire a significant minority stake in the company to ensure its survival. Why? Because a recently-formed subsidiary of Varta, V4Drive, has been successful in developing batteries based on ultra-high performance lithium-ion cylindrical cells. These batteries form a critical part of Porsche’s new lightweight turbo-hybrid-drive technology, first deployed in its recently announced 2025 911 GTS model

• Acquisitions of (smaller) key supply chain partners are not uncommon, including in New Zealand. In October 2023, for example, Christchurch manufacturer Fabrum announced the acquisition of Alec Farra Engineering. At the time, Dr Ojas Mahapatra, CEO of Fabrum, said “Through this acquisition, we’re building our talented team and adding a strategically important part of our cryocooler supply chain to Fabrum.” ( https://fabrum.nz/fabrum-acquires-alec-farrar-engineering-to-support-scale-up ).
However, a car manufacturer considering taking a significant stake in a company on the edge of bankruptcy and with a €250m debt burden and a product range that is only partially relevant to its core business is a different story. It shows how important key supply chain partners can become. The fact that Porsche, one of the world’s most profitable car manufacturers, has got the money to do so, may also be part of that story

• The resilience vs carbon footprint dilemma. Resilience through re-shoring, or, even better, holding on to existing manufacturing capability and capacity, is a hot topic in the US and Europe at the moment, not the least in connection with defence industries. The story of the small (85 employees) specialist foundry operation Gießerei Lößnitz (https://www.giesserei-loessnitz.de/en ) provides an interesting case study on the above dilemma. Established in 1849 and producing about 14,000t of casting today, the company is situated in a small town in a region in Eastern Germany named after its historically rich iron ore deposits (Erzgebirge = Ore Mountains) that stopped being mined about 30 years ago after 800 years of mining.

The company today still uses a coal-fired furnace (Kupolofen), emitting about 6,000t of CO2 per year. They are otherwise using advanced technology in their processes and have a solid sales history. However, the operation is not commercially sustainable, with the rapidly rising cost of ETS emission permits, currently sitting at around €70/t CO2, and certain to rise, not to mention demands from customers (German car manufacturers) to reduce their carbon footprint. The answer is technically straightforward – installing two induction ovens is all that would be required. The cost – a mere €10m, not to mention a €250k contribution to the necessary grid upgrade. That’s a lot of money for a company with a €24m annual turnover in a good year, and a profit margin of between 2% and 3%. Add to that electricity prices at around Euro cent 20/kWh, about 2.5 times that of major competitor nations (US, China, South Korea) and highly volatile, making long-term financial planning very difficult.
The answer? Government subsidies, of which there are plenty in the EU. The German government provides subsidies for energy-intensive industries (Klimaschutzverträge – Carbon reduction contracts) – similar to the grants provided by EECA for NZ Steel, for example, but now no longer available under the new government. Except that won’t help Gießerei Lößnitz, either – the cut-off for these grants is a minimum carbon reduction of 10,000t CO2 per year, and a minimum investment of €15m. So, where next for the company – resilience, meaning commercial viability, or carbon reduction?

Leave a comment letting us know your thoughts on these Manufacturing Matters newsletters – Relevant? // Interesting? // Too long?