As the world seeks to reduce its reliance on fossil fuels, electric vehicles (EV) have emerged as a promising alternative. Yet, the growing popularity of EVs also brings its fair share of challenges. In particular, the battery supply chain is critical to the success of EVs. In this article, we explore the importance of diversified battery manufacturing, critical mineral supplies, and the potential risks and opportunities for the automotive industry.
EV batteries have come a long way since their introduction in the mid-90s. Today, lithium-ion batteries are the most popular type of battery used in EVs, with nickel and cobalt as key minerals necessary for battery production. However, this dependence on finite rare earth metals puts the battery supply chain at risk, especially as demand for EVs is projected to grow.
Furthermore, geopolitical risks and trade disputes, such as the ongoing US-China trade war, have led to supply and availability risks of critical minerals like lithium and nickel. These challenges bring the importance of securing sustainable and resilient supply chains for EV batteries into sharp focus.
In this article, we explore the challenges and risks of the battery supply chain and the measures required to ensure a secure, reliable, and sustainable global supply chain for EV batteries.
Challenges and Risks of Battery Supply Chain
The short-term obstacles for growth in electric car sales include supply chain disruptions and increased prices for critical minerals due to COVID-19 and geopolitical events. These factors could potentially lead to bottlenecks in the battery supply chain, undermining the growth and adoption of EVs.
To mitigate these risks, efforts should be focused on sustainable and resilient supply chains for EV batteries, as well as building enough charging infrastructure to meet the expected growth in sales. OEMs and cell manufacturers must increase their involvement in the upstream supply chain to mitigate risks. They could do this by either through vertical integration, strategic partnerships, or working with tier 2 and 3 suppliers to localize battery production.
Localization of battery production is also gaining traction amongst European automakers who lack natural resources for raw materials. By introducing recycling, closed-loop battery recycling, and working with tier 2 and 3 suppliers, Europe can aim for a more balanced and sustainable supply chain.
Moreover, the price of lithium, a critical component of lithium-ion batteries, could increase up to six-fold between 2020 and 2025 if the demand for lithium outpaces supply. To address this, some OEMs have already entered long-term contracts with lithium producers to guarantee supply and hold prices. However, such agreements may not be available to smaller participants in the EV supply chain.
Battery Supply Chain Security
Ensuring a secure battery supply chain is essential to prevent infiltration of counterfeit and substandard batteries and protect against cyber threats. The safety and reliability of EV batteries must be paramount, considering that vehicles powered by them can weigh up to two tons and operate at high speeds.
To maintain secure supply chains for EV batteries, establishing standards, collaboration, and monitoring across all stages of the supply chain, including raw materials sourcing, manufacturing, distribution, and end-of-life disposal, is crucial.
Moreover, supply chain security is also important for investors as they consider pursuing carbon-neutral supply chains. Environmental, social, and governance factors (ESG risks) are paramount concerns for investors, which will become more crucial as ESG investing continues to grow in popularity.
Battery manufacturing companies and EV manufacturers, therefore, need to demonstrate compliance with environmental standards, human rights, labor rights, and cybersecurity. Demonstrating compliance with these standards and transparency can be a competitive advantage and attract investment in battery projects.