Supply Chain issues in the Electrification of Automobiles
The automobile industry is currently going through a revolution. Automobiles are being electrified that will shift their power source from fuel to electricity. Electric vehicles are fast and convenient and will soon be the only form of vehicles we may see on roads. This evolution is occurring at a very fast pace even faster than many have expected. However, companies that have invested in this adventure facing a tough time to make this innovative technology desirable for the users.
These innovations do not only emerge out of consumer demand but have also been influenced by factors such as urbanization, global warming, and governmental restrictions. It is a challenge to produce electric vehicles that will provide the consumer with adequate range, fast and easy charging, and variation in designs. There are few things that are important to provide consumer with the above facilities. These include innovation along with engineering efficiency and an easy supply of production material.
The biggest obstacle in the way of electrification of vehicles is the supply chain issues. As the demand is growing with each passing day manufacturers are finding it difficult to keep up with the demand. A demand-supply gap is emerging that will not be good for this innovative technology. In 2017 the demand for electric vehicles grew by 21 percent as compared to 2016, that too in the United States alone. Following the trend, many vehicle manufacturers such as Toyota and Honda have decided to electrify their entire lineup. Additionally, the emerging market of electric vehicles has also influenced the charging markets with many giants such as Tesla investing in the field.
Battery supply chain
The central component of the electric vehicle is the battery. Batteries used in electric vehicles contain lithium. South America and Central Asia are the prime locations where lithium is mined. Now this will shift the focus from the Middle East and the North Sea where the majority of the crude oil is obtained from. This shift will ultimately demand changes in the transportation network towards Central Asia and North America.
Anticipating the trend many giants have already shifted their fleets towards lithium-rich areas and established their presence there. Still, many believe that these few will never be able to meet the growing demand. Another major shift comes in the extraction process. Crude oil after the extraction process is taken to the refineries and finally, land in the gas tanks of the cars. On the other hand, lithium will have to be taken directly to the factories located in South Korea, China, and Japan. After the factories, these batteries will be taken to the car factories located around the globe. Furthermore, these batteries need to reach their destination as soon as they could as they may lose their ability after an extended period.
Manufacturing companies are not immune to Changes
The electrification process relies heavily on small manufacturing companies that are responsible for producing and supplying different parts. A conventional combustion engine contains more than 1200 parts while the engine of an electric vehicle contains no more than 20 parts. The difficult part comes with the machinery used in the manufacturing process. The manufacturers will have to change their entire lineup to keep up with the pace of the electric vehicle industry. Not only this, the manufacturers finding it much difficult to produce both an internal combustion engine and an electric vehicle’s parts at the same plant. This demands a huge investment which many small manufacturers will not able to get. Only the big players can find their way to this industry that may not be able to satisfy the demand resulting in a supply crisis.
Battery Raw material issues
As already mentioned the most important component of an electric vehicle is the battery. These batteries are now also being used in powering whole cities by storing energy from renewable sources. Apart from already discussed lithium, battery technology also uses cobalt and nickel as important elements. The electrification of electric vehicles is generating a huge supply crisis of the raw material. According to the different researches, cobalt and nickel are expected to face a supply crunch by the end of this year.
Cobalt is currently being mined in the Democratic Republic of Congo. In Congo, there are certain concerns about the morality of the mining of cobalt. It is also being said that mining this material will also give way to certain environmental issues in the region. Southern Congo is not just rich in cobalt but also contains a huge concentration of uranium. Mining waste is polluting drinking water and the dust from the rocks id causing breathing problems. 60 percent of the cobalt on this planet comes from Congo and so it is the most desired location for many players seeking to invest in the emerging battery technology. The electric vehicles will be very helpful in combating climate change but the process may end up causing a bigger crisis. Many companies are also looking for an alternative to the cobalt. Tesla has recently started to invest in lithium phosphate batteries but its success is yet to be seen. These problems associated with cobalt mining may halt the electrification process for some time until a batter and safe raw material is found.
Major players of the electrification process are currently worried about the supply of the nickel which is also a major component of battery technology. The supply of the class-one nickel is likely to get short in the next five years due to high consumption by the electric vehicle manufacturers. Although the amount of nickel used in the battery is very low still it is a challenge to meet the supply with demand. The need is to invest in the field right now so that challenges could be overcome before the supply gets short. Discoveries in new nickel deposits are quite rare and with the existing fields, it is impossible to meet the increasing demand. Many players are also working to extract nickel from limonite deposits but this will increase the prices as the process is expensive. There are battery technologies that use less or no nickel but they may not be able to deliver at the same rate as those using nickel.
Trade war Between China and America further complicates the situation
China is at the moment the biggest manufacturer of raw material used in electric vehicles. The lithium-ion batteries used in electric vehicles are being produced in China at a very high rate and fast pace. The country is currently engaged in a Trade War with the United States, starting from last year. This political tension is at the moment biggest obstacle in the way of electrifications of the vehicle. Additionally, the COVID-19 situation is creating further complications in production and logistics. COVID-19 procedures have currently halted the lithium on distribution.
Tesla is planning to shift its operations in the United States but the ongoing tension between China and America may make it difficult for the automobile giant. Lithium-ion would have to be imported in China but the President of the United States is reluctant to get back from his harsh strategy of a trade war. The electric car giant is looking for new ways that would reduce the reliability of China and would make America the biggest producer of electric vehicles. The research process is underway and many believe that it will succeed. If this goes well the vulnerability of the supply chain could be overcome.
The world is moving towards new horizons, the electric cars are considered as the dawn of the future that we see in science fiction movies. However, the electrification process is currently in its early phase and will need time and investment to bloom in its full strength.
The biggest problem in the electrification of vehicles is the supply of the material. The pace is process is very fast and it is becoming difficult for the supply chain to keep up with this pace. The raw materials used in electric cars are found in only a few locations that create a huge gap in supply and demand.
The need is to have a more integrated approach to the production process. All players would have to work together to achieve a common goal. This process should not be seen as a race but as a step for the betterment of the planet will live on. Manufacturers will have to be flexible towards the production process and should keep in mind the supply and demand gap. Above all, the need is to look for alternative ways. We may not have the raw material five years from now that we have today, so we will have to look for alternative materials that could be found in abundance and will provide the electric vehicle with the same power and eco-friendly characteristic.