Despite the Covid-19 pandemic, 2020 was a successful year for the EV market and EV supply chains. Yes, the lockdown affected EV (electric vehicle) sales negatively. But, policy measures related to climate change in some countries, especially in Europe, financial incentives from governments, efforts made for infrastructure deployment of charges, and reduced EV battery costs helped the EV market stay resilient and do a great job in the second half of the year.
Electric car sales have increased by more than 40% in 2020 year-on-year, and their models by 40%, with 370 models available worldwide in 2020. In contrast, global car sales have dropped by approximately 15%. Also, some strategic commitments for EVs were announced by major OEM players. For instance, Volvo plans to have 100% fully electric car sales by 2030. BMW Group estimates that 50% of its deliveries will be fully electric by 2030, and Volkswagen expects that by 2030, more than 70% of their sales in Europe and 50% in China and the US will be all-electric.
Deloitte’s forecast shows that by 2030, EVs will be taking 32% of the global market share for car sales, with total EV sales increasing from 2.5 million in 2020 to 31.1 million by 2030. This huge growth in the EV market will certainly make the Supply Chain a challenge for some companies and a competitive advantage for others.
So how does the EV supply chain work, and what are its main challenges? What are EV giants doing to unlock the full potential of the industry? And how can ICE (Internal combustion engines) vehicle manufacturers ensure a smooth transition to an EV supply chain?
EV Supply Chain:
The EV supply chain is somewhat different from the traditional ICE vehicles supply chain. What characterizes the EV’s is that they are mechanically simpler with fewer parts, however the technology makes them more challenging to mass-produce.
The most valuable component of the EV is its battery, which represents about 40% of the total value. China, Japan, and Korea dominate the EV battery market, with less than 3% of the global demand supplied from companies outside these three countries in 2018. China has, for instance, 93 mega factories for batteries in 2020 compared to only four in the US.
Lithium-ion batteries are the most popular since they are light, small, and store a lot of energy. Producing these batteries needs some key raw materials like lithium, nickel, and cobalt. The main producers of raw lithium are Australia, Chile, China, and Argentina. Mining activities of nickel, cobalt and other metals are mainly concentrated in China, South Africa, Indonesia, and The Democratic Republic of Congo (DRC). For instance, in the DRC alone, more than 70% of the world’s cobalt is produced, but unfortunately, the inconvenient labor conditions and the poor working environment are pushing EV manufacturers to look at alternatives.
Let’s get back to the EV battery supply chain. So, all raw materials, after being mined and produced, are sent to China, South Korea, or Japan, for refinement, processing, and cathode and cell production, before being sent to the EV manufacturer. Battery recycling is also part of the EV supply chain, but it’s still not profitable.
The increasing demand for EV batteries and the fact that their production is consolidated in Asia, as well as the sustainability concerns of mining practices of existing raw materials, make the EV supply chain complex, vulnerable, and costly for most automotive companies outside the continent. This is why EV manufacturers are working on new strategies to secure supply and have better control over sustainability like vertical integration, strategic alliances, local supply base, and innovation in battery chemistry.
Tesla, for instance, is one of the most vertically integrated supply chains in the automotive industry. In fact, Tesla’s ambition to accelerate sustainability encourages the company to build more factories faster, produce more EVs while trying to make them affordable, build its own chargers network, advance its software engineering, mine and refine its own lithium, and invest in batteries innovation and manufacturing robotics and automation, or as Elon Musk calls it, “Machines that make machines.”
With everything said, companies in the automotive industry, from suppliers to manufacturers, must adapt and ensure a smooth pivot to EVs while still managing their traditional ICE vehicles operations. OEMs should review their supplier’s base and see if they align with their EV transition strategy or not. They also should think about new competitive advantages, their level of vertical integration, and ways to secure supply while always keeping sustainability in mind. There is no one-size-fits-all strategy for OEMs and suppliers. They need to consider the one that works best for them.
Technology and skills will play a key role in this transition to the EV supply chain. Therefore, Business Leaders and supply chain managers must adopt lean thinking where they discard everything irrelevant and learn best practices from other industries that can be applied to EVs. The transition will require massive investments. But players in the automotive sector – not to mention government – must understand global warming is happening now; it’s happening faster than expected; and we must find alternatives to the internal combustion engine. We are in a life or death situation.