Hella KGaA Hueck & Co. says a Chinese molder suspended parts shipments to the supplier, forcing it to reroute parts from other company plants to maintain automotive lighting production for a key customer in China.
Hella said the unidentified Chinese injection molding supplier abruptly stopped shipping parts, a move that threatens to dent the supplier's earnings as it scrambles to make adjustments to its supply chain. Hella declined to name the Chinese supplier.
Hella officials said in a conference call with stock analysts that the Chinese company stopped all deliveries of some molded components in late August as the result of a financial dispute. The German supplier has been forced to reroute parts, by plane, from overseas plants to keep parts flowing to its customer.
"The problem in China is now caused due to very strange behavior of one of our suppliers, who, as I said, stopped deliveries," Hella CEO Rolf Breidenbach said in a conference call with stock analysts. "This is a really, I would say, once in a lifetime event. We have never seen a supplier behaving like that."
Hella, based in Lippstadt, Germany, said the problem likely would cause its earnings to drop 30 million euros (213 million yuan) in the first quarter of its current financial year, to 69 million euros.
It predicted that the failure of the Chinese supplier would result in 50 million euros in extra costs and charges for the entire fiscal year.
Hella officials issued a profit warning on Sept. 17 and held a conference call to brief analysts a day later, ahead of its regularly scheduled Sept. 25 first-quarter earnings report.
The extraordinary charges resulted partly from Hella having to fly in the same parts from other factories in Europe and the Americas to meet orders from a customer, which it also declined to identify.
Extra costs also will be incurred from resuming production at another Chinese supplier within six months, and the possibility of having to purchase duplicate tooling, the company said.
Breidenbach said the impact on Hella's customer was not significant and Hella estimated it could resume production of the parts in China within six months.
It said the problem concerns its lighting business, and mainly affects headlights, taillights, and single-function lamps.
Hella executives repeatedly declined to speculate about the motives of the unnamed Chinese supplier but Breidenbach at one point said the dispute with the Chinese company was over money.
"It wasn't a quality-related issue," he said. "It was a -- how should I call it, financial -- unusual financial expectations from the supplier."
Hella executives said the problem is limited to the particular supplier and not indicative of bigger difficulties in China's auto supply chain.
"There are more and more very good-performing local suppliers in China and our supplier base is increasing and competition is increasing," Breidenbach said. "Therefore, we see the supplier base getting more competitive compared to the last years."
Apart from the Chinese component problems, Hella said it expects its first quarter sales to increase 14 percent to 1.5 billion euros, with 4 percent of that due to exchange rates.
It credited new product launches and strong overall demand in the Americas, Europe and China for the increase.