August 02, 2022 | Supply Chain Strategy Blogs
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.
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.
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:
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.
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.
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.
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.
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.
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.