Electric vehicles (EVs) could play a pivotal role in curbing rising carbon emissions from the automotive industry, yet their battery technology will have a massive impact on global supply chains.
Mining nickel, cobalt and lithium – key components in electric vehicle batteries – is a potentially risky undertaking that often results in pollution and environmental degradation.
China
EV proliferation has resulted in massive investments in new battery manufacturing capacity, creating supply chain vulnerabilities and ESG issues that must be addressed – including raw material shortages and an emerging commodity supercycle that places rare and costly materials under strain for extended periods. This represents both an economic risk for companies as well as global safety for all involved.
EV manufacturers should diversify their sources of raw materials and secure long-term contracts with mining companies to protect themselves against price fluctuations and ensure an uninterrupted supply of essential components. They should also develop an aggressive recycling program in order to decrease demand for new batteries while simultaneously taking advantage of valuable raw materials that become available during their lifespan.
Companies that process and refine EV batteries possess purchasing power that enables them to ensure ethical sourcing practices for minerals used in batteries. Companies processing and refining these minerals have purchasing power and can help increase traceability for increased ethical sourcing practices. They interact with upstream miners directly, so if these “midstream” actors adhere to stringent due diligence requirements and auditing procedures they could force mines to change unethical mining practices; legislation or consumer pressure may also improve sourcing; however their success requires support from a wide variety of stakeholders for success.
Japan
The electric vehicle market is rapidly growing, necessitating an effective supply chain to support it. From raw material costs to transportation expenses, an unstable supply chain could jeopardize their economic and environmental viability – having serious ramifications on economies, suppliers’ schedules and investments; not to mention impeding decarbonization efforts by forcing consumers to continue using fossil fuels as transport.
Battery manufacturing requires significant investments and energy resources, and therefore companies often prefer purchasing batteries from third parties rather than investing in their own gigafactories. This tactic provides tactical flexibility for smaller players or those that wish to retain strategic flexibility.
China, South Korea and Japan dominate EV battery production and account for more than 71% of global production capacity. They are also the biggest buyers of lithium, nickel and cobalt used to make batteries – raw materials often mined from countries with unsavory political histories while often exploited through child labor practices.
Consumers and automakers are exerting increasing pressure on upstream actors to improve mining practices, leading them to pledge commitments that address human rights and environmental violations. Yet when considering battery production costs as well as emissions reduction goals for EVs, their effectiveness diminishes considerably.
South Korea
Manufacturing electric vehicle (EV) batteries requires significant investments in land, buildings and specialized equipment as well as high energy demands from electricity supply. Furthermore, it’s an energy-intensive process which uses up a significant portion of electrical power; furthermore it has potential environmental and social ramifications and challenges accessing critical materials and minerals needed for manufacturing; therefore many companies in the EV sector strive to enhance supply chain transparency and ethical sourcing practices in order to remain competitive.
However, most EV battery manufacturing still takes place in just a few countries and thus remains at risk of disruption should political events, trade conflicts or natural disasters disrupt supply chain operations. Such events could potentially damage economies, delay construction of Gigafactories producing batteries at scale and increase transportation costs; forcing workers to reduce salaries as a result; as well as discouraging investment into EVs and related technologies.
Mining for key raw materials of electric vehicle batteries can be an extremely hazardous and labor-intensive endeavor, using toxic chemicals that pose health and environmental risks, with waste produced threatening water sources as well.
Downstream players in the EV battery market can exert significant influence on responsible mining practices by engaging with upstream players and creating contracts that mandate that only from responsible mines will be sourced.
Europe
As electric vehicles (EVs) become more mainstream, consumer interest and investment have rapidly increased. New innovations like longer battery life and wider driving ranges have propelled their market’s development even faster.
Battery boom times have put immense strain on the industry’s supply chain, leading to rising raw material costs and an ever-increasing reliance on finite resources. Companies involved in midstream parts of value chains may face increased challenges related to human rights violations and ethical sourcing of electric vehicle battery cells.
Some of the world’s leading EV manufacturers are making efforts to increase domestic production capacity, diversify raw material supplies and manufacturing options and lessen reliance on China, which accounts.
Due to the significant capital costs involved in creating a gigafactory, some larger companies opt for purchasing batteries from third parties rather than investing in their own gigafactories. This tactful decision may make strategic sense for businesses planning limited entry or seeking strategic flexibility within the electric vehicle market. To overcome such hurdles, battery manufacturers need to focus on three essential activities: optimizing factory design; creating an accurate construction schedule; and developing governance and performance management structures.