Supply Chain Challenges in the Ultra Luxury Auto Sector

[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Champions Podcast. We are on a mission to bring you real conversations with the leaders who are transforming supply chains in the automotive sector. These leaders are true champions of manufacturing, and we're here to share their stories. I'm Jan Griffiths, your host and producer, and I'm joined by my co-host, Tom Roberts, Vice President of Strategic Industry Development at QAD.

[00:00:30] Tom Roberts: Great to be here, Jan. What I see every day is simple: manufacturers don't have a data problem, they've got an execution problem. This show is about how artificial intelligence, systems of action, and empowered teams can help close that gap.

[00:00:45] Jan Griffiths: Let's get into it. This podcast is powered by QAD RedZone.

Hello, and welcome to another episode of the Auto Supply Chain Champions podcast. Let's check in with my co-host, Tom Roberts.

Tom, what you been up to?

[00:01:03] Tom Roberts: Hi, Jan. Doing great. Yesterday we recorded our webinar, Beyond the Bottleneck: The State of AI in Automotive Manufacturing and What's Next with Automotive News. So that's out there. I encourage everybody to give that a listen, register and give that a listen. So should be pretty informative for the folks out there.

But that's, that was the, one of the big blocks I've had to get through in the last week, so that was great.

[00:01:26] Jan Griffiths: Yeah. Yeah, that sounds really interesting.

Yes, I've been thinking a lot about, believe it or not, low volume. Don't ask me why I've been thinking about low volume, but I've been thinking about challenges with low volume production. And well, I'll tell you where it came from. I was on a Reuters panel, a webinar a few weeks ago, and I was very impressed with all the leaders that we had on that webinar.

But somebody that really got my attention I wanted to bring on the show is Juan Lalinde, and he is the director of global purchasing and supply chain at Karma Automotive, and he's here with us today.

Juan, welcome to the show.

[00:02:09] Juan Lalinde: Hey, thank you for having me, here It's a pleasure to be here.

[00:02:13] Tom Roberts: Great to have you.

[00:02:14] Jan Griffiths: It's really good to have you, and Karma Automotive. I mean, it's a beautiful vehicle. It's low volume. It is the high, high, high end of the luxury class. You know, what an exciting vehicle. What an exciting company to be around. I have interviewed Marcus McCammon, your CEO.

I mean, we have the exact same philosophy around leadership and culture. We both grew up in legacy automotive world. He is fired up and pumped to make a success out of this company. And so I'm thrilled today to come from that CEO-level vision to really come into the nuts and bolts now of supply chain at Karma.

Before we get into that, tell us a little bit. Let's get our audience grounded on what Karma is. Karma grew out of the ashes of Fisker, if I remember rightly. Is that right?

[00:03:11] Juan Lalinde: Correct. To put it into perspective, the Revero that we just launched last year is the true phoenix of that transformation even though the company took over the assets about a little over 10 years ago, the efforts that have been put into engineering since, like, the, times of COVID until today made the vehicle that we have today a totally different animal. And it's setting up the ground for what's to come, beginning with a GS era and then coming up with Ivara and the next vehicles that are in the future. And the big one that I have here and behind me the Caveya, which is a super, super coupe GT, which is just magnificent

[00:03:52] Jan Griffiths: Yeah, I see images with superstars driving around in them, right? And, I mean, it really is quite something. The vehicle, the company, you know, great, beautiful, but the challenges for supply chain, Juan, woo. Low volume. Talk to us.

[00:04:10] Juan Lalinde: Yeah. We want it to be entertaining because we didn't have enough with tariffs and wars and everything else, so we figured might as well just do low volume, Make sure that we keep it, we keep it fun and challenging for everybody else. But it certainly is a challenge because most of the manufacturers in the traditional tier ones and twos, they scrap more than we need for a year in just one week. So in many instances is finding the right partner for the specific part that we need, because even if it's not a true traditional tier one or tier two, if we find somebody that cares about the, the smaller volumes the companies like ours that are just starting, wanna make a great, beautiful car, that care, that supplier is putting into the parts that they're making are gonna show up at the end in the result for the vehicle.

Because in ultra-luxury, details matter, right? And it's not just the details of the technicians. It's like every single piece, right? It's how it's designed. It's how it's put together. It's how it's sourced. And to your point with under Marcus' leadership, the caring permeates, right? The developing of the cross-functional team collaboration is paramount, and it takes time, right?

It takes time to build those teams. It takes time to build that trust. But as we've been working through the new Rivero and pulling through those challenges that, that happen in the supply chain around the world during the manufacturing process, we all grew, and it's a really fun place to be at, and it's just a beautiful product.

[00:05:46] Tom Roberts: That's amazing. I mean, 'cause the scale is, you know, I'm still trying to grasp this. It's, you know, every car that comes off that line is, has to be almost like a work of art really because the numbers are so small that it has to be right.

There is no option for or... you can't have 10 vehicles. You can't do that kind of thing. There's no, those stats

[00:06:08] Juan Lalinde: Correct

[00:06:09] Tom Roberts: So that's a really amazing concept that you have to drive home, is that everything matters.

[00:06:16] Juan Lalinde: Yes. Everything matters. To be honest the folks that we have, I've been working closely, my team in the paint shop, because for the new product, we're developing new colors and new schemes and some beautiful... I mean, our design team is just incredible. But, so we've been working a lot closer with them, and then the more I meet with them, the more I realize that we have group of artists.

And now, the plan is how do I remove them from having to put hours into planning ingredients for the paint? What if I can have them just painting and doing what they're passionate about, and let them forget about, "Do I need this color? Do I need this other color? Do I need this base coat?" And that's just the one example, right? You start meeting the people that put together the body in white, how we have a portion that goes to the robots, but then you have a guy that is keeping an eye on the robot, making sure that it's not over-welding or overdoing, and that it's just right, 'cause it has to be just right.

'Cause stock up, at the end of the day, right, when you're only making 150 cars a year, you need to make sure that your peer down the hall doesn't have to waste too much time reworking whatever you just did, because then that's time that they cannot put towards beautiful vehicle at the end.

So it's one of those things where now that you know what the next one has to do if you make a mistake or if something is not perfect, then you wanna make sure that they're utilizing their time and materials to put the care into the car. So it's been a wonderful process.

[00:07:55] Jan Griffiths: That's a very different approach though, but how does this manifest with supplier selection, Juan? How do you select suppliers knowing that this is such a different animal to traditional automotive, and you're probably up against all the tier one guys, right?

[00:08:09] Juan Lalinde: Yes. We've had several issues where we have some of the traditional tier twos, tier threes where they say, "I have no capacity because we just received this massive order for like a big German OEM or for one of the big threes, so your order has to go to the back burner." The automotive is a big industry, but it's a small space.

So as long and I don't know if you remember, Jan, during our o-other event, is the phrase I know a guy, right? It's always critical, and I mentioned, in Steve we trust. So we have a very tight team. So between our VP of supply chain, my director of strategic sourcing, and myself, and the rest, we find folks that we know are interested in growing the business.

Somebody that left a big tier two because they were passionate and created their own shop. And we have the ability to develop the supplier, and we have some prerequisites. So, we talk about are you at least ISO certified? Because if you're ISO, then we can work towards IATF. And we start developing this because if they grow, we grow.

So we start finding these golden nuggets here and there. And quite frankly, for us, even though AI is the future, for us, HI, human intelligence, is what's taking us to the next step. So yes, AI is helping with a lot of the noise and a lot of the non-value-added tasks, but the doors are open through a good old knock on the door. And we find always somebody that can help us get through a door and, get a step in. And we've got a lot of noes, but we've also had multiple yeses with people that are interested in the technology, that wanna step into the ultra-luxury world, and they haven't been able to go with the traditional luxury guys. But they believe in what we're doing.

They know of Marcus, they know of Nick, our chief designer, and it's just a matter of us continuing to do what we say we're going to do. So it hasn't been easy, but we've managed to meet some wonderful companies that have been developing really good partnerships with us and helping us take these cars to the next level.

[00:10:21] Jan Griffiths: So I think it's a lot of marketing. If I was a supplier thinking about doing business with you, I would see it more of a marketing opportunity because I want my product on a car that some, you know, movie star's gonna be driving down the road, right? You gotta appeal to the marketing side of the business because the nuts and bolts of the business with 150 vehicles a year, it's prototype volume.

They're not gonna touch that.

[00:10:45] Juan Lalinde: Yes, absolutely. But then, I mean, you know this. I know another one of your guests in a previous interview was talking about, $2 million in tooling, $1 million in engineering development. So the barrier of entry is significant.

And when you talk 150 units in one year, 250 units in another year, then that becomes a barrier of entry. So how do you find options of manufacturing? Is there another type of low-volume tool that can help us get the detail that we need in the finishing of the part without breaking the bank? because we have to be smart about how we spend the money. We don't want to be the ashes from what another car company comes out of, right?

We wanna be the standard. We wanna be that, the best American ultra-luxury company, and we wanna be the ones that the Ferraris and the Lambos of the world are gonna be saying like, "Oh, my goodness, here comes the new Karma." Right? "It's on." and that's what we wanna do, and that's the narrative we're taking it, and we're showing it, right? If you look at, and you're gonna see it this weekend in the Monterey Car Show, our beautiful, that beautiful GS-R and how it looks. It's just stunning.

I agree with you. It's the marketing. It's some people wanted to take the gamble, and it goes both ways, right? We're taking the gamble with a few smaller shops that want to get in, we found them.

The advantage of us also is, in this space, is that there's a little more room to have the ability to invest in smaller companies that could be in the UK, in India, in Europe, somewhere in, in South America. Domestically, there's a few, that once this partnership, evolves and gets to the point where we start producing cars and they start seeing To your point, Jan, a celebrity, Jay Leno has one of our cars, right? He has a video already in his youTube channel.

Started seeing all of these guys talking about how beautiful the details are, how the lights look, how the interiors look.

It's a very big deal, right? 'Cause now their part is being talked about by some of these, these experts and automotive fans.

So it is a different thing and it's where we're getting to, and it's fantastic. We've seen great responses from companies in the IT world. For example, Dell Computers. We've had a great partnership with them, and they've been really supportive in many aspects of the business. And, it's been wonderful because it's also the connection of the connection, right?

It's how you get to other places. It's a company that does wonderful things for small and medium companies. So I normally go, "Hey, who else do you got in the small business that is doing automotive, and is there anybody doing something like this?" And then they connect people. It's a big networking. It's just about knowing a person that can connect two people and see where it gets you.

[00:13:41] Tom Roberts: It's the power of the automobile. I was born raised and have lived within 30 miles of Detroit my entire life, just about. Maybe minus a couple year, few years of college and, a short TDY in Germany. But there's nothing like a car. Because if you have great car, it's this thing that drives around, and it has its own life to it.

Like, if it's, you have a beautiful car, people see it, they wanna know about it. There's nothing like it. I can remember, Juan, kind of talking about your particular story. I can remember before I joined QAD, in talking with some of the other leaders in North America at some of the companies I worked, at before one of them, and they would get calls from smaller EV companies that were just starting, and sometimes they would say to me that, " we don't even know who these guys are." I think what you're doing is if you have the right vision, and you see a compelling product, that is what gets people to, to buy into those things. And I think that that is a beautiful vehicle, so it's just a great way to approach it

[00:14:48] Juan Lalinde: Yeah, Thank you.

[00:14:49] Jan Griffiths: I just want to clarify one thing. So some people think of Karma as a pure EV, but it's not pure EV, is it?

[00:14:55] Tom Roberts: Right

[00:14:56] Juan Lalinde: No, no, no. We are EREV, so it's an Extended Range EV.

So the, power train is electric, but our current vehicles have an internal combustion engine that generates power for the battery. So you get the best of both worlds. You get to drive it both ways. You get to use your stealth modes and use the battery alone, and for quite a good range. And then if you wanna just switch power and give it a go, you'll feel it, and you can just go through, use some of the gas engine power, and it'll just continue to generate electricity for the motor. So yes, you're correct, Jan. We're not purely EV.

[00:15:34] Jan Griffiths: Yeah. I wouldn't do a pure EV to be honest, but I might do an EREV. I'm not suggesting I'm gonna run out and buy a Karma anytime soon, but...

[00:15:42] Juan Lalinde: You should.

[00:15:43] Jan Griffiths: But if you wanna give me one...

[00:15:45] Tom Roberts: It's funny because, you see there's almost jokes online or memes online where you have the person who will have a pure EV, but they'll have that little Honda generator that they put in their trunk.

[00:15:57] Juan Lalinde: Yeah

[00:15:58] Tom Roberts: It's almost brilliant what I think you guys are doing and having that level of range, that level of alleviating range anxiety. I think it's actually a great approach technologically.

[00:16:09] Juan Lalinde: Yeah, and it's not new for us. So this has been since the inception of the company, so we know what we're talking about, and it's being perfected every time, and our engineers are, we have a couple here in the playground where these guys are making it better and better every time.

So it's a great way to present this technology for sure.

[00:16:27] Jan Griffiths: Yeah, I like it. Now I wanna take you back, Juan, you talked a moment ago about sourcing product, and you mentioned other countries. And immediately when I start to think about sourcing in other countries, you know, the tariff, the T word comes up.

So we've got a lot of supply chain volatility, geopolitical risk. You've been resourcing some products from China. You know, tell us what's, what, how are you dealing with these challenges?

[00:16:57] Juan Lalinde: It's a game of Whac-A-Mole. I mean, it's like a trivia pursuit but with tariffs, right? You don't know what you're gonna get in the next roll of dice. With our volumes, we go back to the low volumes. When this car was originally sourced, a bunch of the structural parts were sourced by Fisker in Northern Europe.

So, in Scandinavia and some of those big, big aluminum extruders are located way out there. And some of them have disappeared, some of them merged with other people. And once we start knocking on the doors saying, "Hey, you know, we used to have inventory, but you have our tools. We need to order some more."

And they said, we kinda reached out to you like 10 years ago. Nobody answered. Your tools are gone." So we have to start looking into, like, "Okay, how do we start this again," right? And let's find people that have the capabilities to do this, and where are they? so of course, China has massive, massive manufacturers and stampers and extruders and all that. But then there's also, well, we found a company close to us in Mexico. They have a facility in Tijuana. fantastic company, fantastic team. So we started working with them, and they didn't mind the volumes. And we worked creative ways on how do we manage the minimum order quantities because they're, of course, used to running, thousands and thousands and thousands of parts a day.

[00:18:29] Tom Roberts: You might be buying 5.

[00:18:31] Juan Lalinde: And so you know, I grew up in Colombia, and we have a saying, right? The world is a handkerchief, right? It's so small. It just happened that luckily one of the executives turned out to be graduated from university with my cousin and was a really good friend of one of my best friends from high school.

So we connected, and that changed the entire conversation, right? 'Cause now I wasn't just some unknown person that was knocking on the door. He had personal connection now. so we had an open conversation, open book. I took him to the plant, took him to the office, showed him what we're about, say we're not just some business plan, business case, because unfortunately, there was a lot of EV startups that failed, and that also caused a problem for us, right? One of those side effects of the failed EV companies is wanna do business with any EV-related company.

We started working with this company, developing the relationship, and we started show- seeing their capacities. Their high ATF, their ISO, every, every potential certification that you want, these guys had it. And the best part is that they're in our backyard, right? We're in Southern California. This is a two-hour drive, two hour and a half with bad traffic, right? And we got a part. We said, "This is cool." And then all of a sudden, the administration doesn't like Mexico and Canada, and now we have tariffs. And we're like, "Ah, here we go again." And we had just invested in tooling.

And it's just that. So at some point, like, what is the cost of opportunity of this? And you start throwing the numbers, right? It's a numbers game. So what do we do? Okay, what is the cost if we go back and resource it from somebody else? And it turned out that the... once we run the numbers, and the fact that these guys were just in our backyard, it made sense to continue to push it even though the tariffs were high. Because, with China, they had tons of extra tariffs, so it didn't really make sense to go back and source from China. Domestically, was impossible because the cost of doing it here was 10 times more. It just didn't make any sense. So, we ran the numbers and we said, "You know what? Let's push it." And made the business call to continue to invest and develop the relationship. And we've gotten really creative on pricing structures and how do we best support this supplier so we're not taking capacity that they could use for somebody else.

Because we're so small volume, we work on forecasting. Forecasting is paramount and clear and open communication are just the gods that drive this. So we were saying like, "Hey, look, as long as you can get me 100 of these by this date, I don't really care if you run it at 1:00 in the morning, at 10:00 in the morning, or if you run it a month from today or two months. As long as you get me these parts on this date, have at it."

[00:21:37] Jan Griffiths: Yeah, so that you're giving them more flexibility.

[00:21:39] Tom Roberts: Yeah

[00:21:40] Jan Griffiths: Love that

[00:21:41] Juan Lalinde: So we're working around their capacity because for us, as long as I get my 100 parts, I don't care. Just run your capacity analysis, and it'll take you two hours to put this die on the machine, and then you schedule through the CNCs, and you're good to go. And we've been working like that, and it's been a wonderful partnership. And like that, we have multiple cases, companies in the UK, companies in Europe, that really want to continue to see, a company like us grow because they may say, "Hey, we quoted for this back in, 2010 when, Henry was doing this thing, but it never went anywhere. We've seen what you do. We've been tracking you. We love what you showed. Can we have a crack at this?" And now it's a different story because once you have product on the road, it's a different beast, right?

[00:22:31] Jan Griffiths: Yes

[00:22:32] Tom Roberts: Once they see that work of art driving around, that's a whole different discussion.

[00:22:37] Jan Griffiths: Yeah

[00:22:37] Juan Lalinde: So now, it's real. It's like, okay, these guys are for real.

So it's been fun. I just love it. Like, I keep telling Marcus, for example, it's like, "Look, the day that you see me getting here after my one hour and 20 minute commute without a smile, worry. That's the day I'm bored." It's not happened yet, and I've been here for almost three years, and I don't see it happening anytime soon.

[00:22:59] Jan Griffiths: And that's a beautiful way to close us out today, Juan. Your excitement about your job, the brand, the leadership, all of it. And thank you for giving us a peek inside the world of a supply chain leader for a very small, low-volume, ultra high-end luxury vehicle like Karma.

Thank you for joining us today.

[00:23:23] Juan Lalinde: It is my pleasure. Thank you for having me over.

[00:23:26] Jan Griffiths: We wanna hear from you, our listener. Tell us what are your challenges right now? What conversations do you want to hear across the airwaves on this podcast? Drop us a comment on our podcast website. The link is in the show notes.