A 3-Point Roadmap to Minimize EV Supply Chain Issues

We are already in the era of electric vehicles (EVs). 

Up to two million EVs were sold globally in the first quarter of 2022 -- 75% more than Q1 of 2021, according to a report by the International Energy Agency (IEA). 

Although EV sales are expected to reach 30% of total global car sales by 2030, more needs to be done to reach net-zero CO2 emissions by 2050. Currently, transport accounts for around one-fifth of global CO₂ emissions. This effort includes overcoming challenges in sourcing materials and relooking at the EV supply chain.

Overview of the EV Supply Chain 

The EV supply chain is highly complex, expensive and at risk, made doubly so for two reasons – both linked to the battery supply chain. 

First, the scarcity of raw materials. Resources required for battery manufacturing are mined in only a handful of countries, creating high supply risk due to geopolitical issues, like the ongoing Russia-Ukraine war.

Second, the refining and processing of these raw materials are done in Asia before being sent to EV manufacturers, making the supply chain costly.

Thus, a gradual shift from global sourcing to local sourcing is underway to ensure simpler, faster and cheaper supply chains.

What Are the Different Challenges in EV Supply Chain? 

Electric cars run on single-speed transmission and it is challenging to find suppliers since the EV industry is neither as streamlined nor mature as the internal combustion engine (ICE) vehicle industry. The challenges are: 

●  Lack of scale in single-speed transmissions 

Suppliers are facing difficulties in finding the volume to manufacture single-speed transmissions to compensate for the loss of orders from ICE car manufacturers as they slow down production. Add to this, multiple EV manufacturers have different standards and numerous models. Thus, both inbound and outbound supply chains are complicated and expensive due to lack of scale.

●  Many battery types and storage problems  

Asia, the major supplier of batteries, finds it difficult to store and move the parts for multiple variants since they are considered “dangerous goods (DG)” and regulated stringently by governments. Even most shipping carriers (air and sea) refuse to handle DG cargo and those that do have strict processes in place and seek high fees for handling the cargo. On top of this, there are different types of batteries of various chemical compositions, styles, and sizes -- lithium-ion being the commonest type – further complicating the supply chains.

●  Low chances of scaling in making electric powertrains 

Most EV manufacturers have their powertrain designs, and thus, due to non-standardization, their suppliers cannot scale up. Moreover, fluctuations in EV sales volumes are often expected because of changes in incentives and regulations, requiring manufacturers and suppliers to incorporate flexibility into their supply chains, which is a challenge at low production volumes.

How Do You Overcome these EV Supply Chain Challenges? 

●  Understand the supply chain issues 

• The EV industry is a new field for the supplier and original equipment manufacturer (OEM), so lack of experience is the culprit
• Strong relationships with suppliers are yet to be developed, contributing to high risks and poor resilience.
• A seller's market and lack of scale contribute to higher costs
• Raw material for battery manufacturing is available only in a few locations. Material processing happens only in Asia, so shipping it to the EV manufacturer is expensive, and reaching it within time is a challenge.

●  Focus on collaboration and visibility in the automotive supply chain 

• Ensure a technically qualified procurement team knowledgeable in sustainability is in place to steer the EV business in the right direction.
• Ensure the procurement team sets up the process for selecting new and competent suppliers, which will ensure the quality of supplies is maintained, assured supplies over the long-term, and reduced supplier risks.
• Enhance collaboration with suppliers during project development to lower costs, improve quality and processes, and ensure innovation through sustainability is at the core of all activities, be it procurement or manufacturing.

●  Prioritise and mitigate possible risks 

• Digital transformation is a priority for dealing with inefficiencies, lack of visibility and resiliency, high risks, and resiliency. 
• Intelligent decision-making is required to ensure new strategies to mitigate risks by providing viable alternatives for sourcing. For example, moving from global to regional sourcing. 

Managing Unforeseen Activities in the EV Supply Chain 

• Having a robust, flexible, and experienced supplier partner is critical for managing situations such as production stoppages due to the non-availability of crucial parts. 
• Improving supplier relationships through close collaboration is another. 
• Ensuring an advanced technology platform that provides end-to-end supply chain visibility.
• The software for supply chain  must be capable of delivering actionable insights to enhance procurement and supplier collaboration and be capable of monitoring all-around performance metrics.

Conclusion 

Risk is ever-present. EV businesses must understand that currently, the state of supply chain visibility and risk mitigation are insufficient to withstand current challenges now, leave alone those in the future. 

Automakers must prioritise these capabilities and embrace the right supplier program for a robust and resilient EV supply chain.

FAQ -

1.  How is the EV supply chain evolving?

A gradual shift from global sourcing to a more local sourcing option is taking place to ensure simpler, faster, and cheaper supply chains. The number of EV variants is being reduced to ensure simpler supply chains.

2.  What are the new opportunities introduced by the EV supply chain?

• Public and home EV charging stations
• Battery recycling business
• Battery swapping technology

3.  What are the accelerating factors in the EV supply chain?

• By 2040, 75% of all vehicles sold globally could be EVs
• Sustained policy support - subsidies and incentives for EVs
• Several countries have pledged to stop ICE vehicles and announced targets for EV adoption

4.  How sustainable is the EV supply chain?

EVs are not produced sustainably, though the end product is. For example, manufacturing a battery is not ESG positive, and the disposal of batteries is a nightmare. Mining for resources, such as lithium, is not sustainable either.