Are EVs truly the future of the auto market?
As the world moves towards sustainability, the electric vehicle (EV) industry is gaining momentum in the auto market. EV promotions are being done by select public and private entities globally. These efforts have led to a paradigm shift in the automotive industry.
In recent years, EV supply chain operations are continuously rendering and adopting innovations. Such growth swerves limitless potential. Hence, EVs are slowly but surely becoming the alternative for internal combustion engine vehicles (ICEVs) and the auto industry’s future.
The creation of the United Nations Framework Convention on Climate Change in 1992; the Kyoto Protocol,1997; and Paris Agreement, 2015 have pressed forward issues on detrimental human consumption of natural resources, one in which climate change has been a consequence.
In the past three decades, world leaders have continuously delved into the topic of climate change. Together, they have been developing counter-initiatives against global warming. Now, there are technologies readily available in the market that can aid in alleviating the strain on the environment.
There are more than 1.7 billion motor vehicles on the roads globally. It accounts for more than 20% of global CO2 emissions. Hence, it makes perfect sense that one of the key technologies in recent times addresses how both people and goods moves using sustainable cars.
As such, EVs usher the hope that they may aid in solving the woes of sustainability faced by the transportation sector and in climate change mitigation. The exponential growth of EVs on the roads is now apparent due to the successes of brands like Tesla and BYD.
There are approximately 13 million EVs globally by the end of 2021. The number renders a significant margin from only about 100,000 EVs in 2012 that were plying roads worldwide. However, EVs introduction is not without its fair share of obstacles and challenges in which supply chains play a major role.
Gaining a better grasp of EV supply chain visibility in Asia and worldwide is crucial in deploying and adopting EVs. Visibility aid in the optimization of operations.
Raw materials extraction
The production of EVs requires a complex supply chain. It includes several materials, with a particular focus on EV battery components. Batteries need rare earth materials such as lithium, cobalt, and nickel. All of these raw resources are from specific regions around the world.
About 98% of global Lithium production takes place in Australia, Latin America, and China. Cobalt production happens in the Democratic Republic of Congo (DRC), Russia, and Australia. Nickel production occurs in Indonesia, the Philippines, New Caledonia, Russia, and Australia.
Many source countries of raw materials for EV batteries have weak labor laws. Also, they often have poor working conditions, low wages, and rampant exploitation of vulnerable workers.
Likewise, geopolitical issues also affect the EV battery supply chain. One example is the ongoing conflict between Ukraine and Russia. It has led to concerns about the supply of critical materials, such as nickel and cobalt, which are produced in said regions.
Meanwhile, the environmental concerns of mining such metals are also a significant issue. The extraction of these critical raw materials often has environmental impacts, including deforestation, soil erosion, and water pollution.
The concerns pose significant risks to the supply chain of raw materials. In turn, there are calls for greater transparency and accountability in the production of EV components.
Battery
As mentioned above, one of the most critical components of EV production is the batteries powering the vehicle. They account for a significant portion of the production cost. As EV production scales up, ensuring the quality and reliability of battery components remains a major challenge for manufacturers.
China dominates EV battery production with around 60% of the global share. Such has been attributed to the government’s support for the industry. It includes subsidies, investment in research and development, and a large pool of low-cost labor.
However, the US and China conflict over semiconductors has rendered trade sanction on China. The said sanction has caused strained relations between two of the world’s major superpowers.
Battery supply and technology mostly originate from China. Hence, China may hold the chips as retaliation as the world moves towards greater battery consumption.
The lack of global regulations and regulatory bodies governing the circular economy of batteries is also a significant challenge. Currently, there is no clear policy on whether automotive or battery manufacturers should be responsible for the returns of batteries.
This issue has significant implications for the returns’ supply chain. Also, the policies put in place could impact the supply chain for either industry.
Despite the challenges, advancements in technology are helping to improve the quality, reliability, and efficiency of the production of batteries for EVs. For instance, solid-state batteries use a solid electrolyte instead of a liquid electrolyte. They have the potential to improve battery performance significantly. These batteries are also safer, with reduced risks of leakage or explosion.
Furthermore, there are efforts to develop a circular flow model of the economy for batteries. It involves recycling used batteries to extract valuable materials, which can then be used to produce new batteries. However, the lack of regulatory frameworks and policies to govern the recycling of batteries remains a significant challenge.
EV charging infrastructure for the transportation sector
As the global transition towards sustainability in the auto market accelerates, the supporting charging infrastructure for EVs faces significant supply challenges. With the exponential increase, infrastructure production struggles to keep up with demand. It places a strain on the industry.
Currently, the three largest producers of chargers are ABB, Siemens, and Schneider Electric. All of which have their main businesses entrenched in other forms of engineering.
This presents a significant barrier to the entry of new suppliers since the cost of competing with established companies may be prohibitive. Also, selling prices may not allow new suppliers to become profitable.
Furthermore, the lack of standardization in the industry is creating further challenges for the supply of charging infrastructure. Adding to the complexity are the fragmented regulations by the governing bodies of different countries.
Infrastructure manufacturers will need to adopt different standards when supplying in different countries. It causes the need to have multiple different manufacturing approaches. This means that the supply of charging infrastructure is already tight, and these regulations are only making it tighter.
Standardization will reduce costs and provide greater accessibility to consumers, ultimately driving demand for EVs. Thus, there needs to be greater collaboration between auto manufacturers and charging infrastructure producers to standardize charging systems for EVs in the auto market.
Governments can also play a key role in supporting the industry by providing incentives and implementing regulations. The initiative will promote the development and expansion of charging infrastructure.
Addressing the need for skilled labor
The production of EVs should have a paradigm shift in manufacturing technology, and new battery technology must advance at a rapid pace. Additionally, modern vehicles require software and hardware integration, which requires skilled developers.
Conventional manufacturing technologies in automotive production are outdated. Moreover, companies will need to train and upskill their existing workforce or hire new employees with the necessary skills, which can be time-consuming.
Battery technology needs to evolve constantly to become more efficient and streamline the manufacturing practices of EV battery manufacturers. Doing such will aid in achieving economies of scale and bring down the cost of battery production.
This fast-paced evolution renders the need for highly skilled and talented individuals. However, there is a shortage of such talent in the market, and companies may find attracting and retaining skilled employees challenging.
Moreover, modern vehicles require many different computer programs to run, from the timing of fuel injection to how much oxygen your engine receives. With the advent of vehicle electrification, this need is even more significant.
Talented software developers are in demand in the EV industry. They are needed to ensure electric motors are running at optimum efficiency. Also, they make the user interface in the infotainment system user-friendly and the software and hardware integration more seamless than ever.
Although there is no lack of skilled software developers in the market, finding talent that is entrenched within the requirements of the auto industry and transportation sector is challenging.
Skilled labor shortage can significantly impact the EV industry’s development and growth. Companies will face certain challenges if they cannot find the necessary skills within their workforce or through external hires.
Said challenges may slow down or lessen efficiency in production, raise quality issues, and increase production costs. Furthermore, skilled labor shortage can delay the innovation and development of new technologies. It will ultimately impact the competitiveness of the EV industry.
Working with specialized logistics suppliers
The production of EVs is quite different from that of traditional gasoline vehicles. It requires specialized logistics solutions. One of the primary challenges is the transportation of EV batteries.
Unlike traditional automotive parts, batteries are quite large, heavy, and classified as dangerous goods. As such, transporting them across continents requires new methods of packaging and movement. Additionally, the speed and delivery reliability of the transportation of batteries poses a significant challenge.
In addition to transportation, warehousing and supply chain solutions also need to be refreshed by third-party logistics providers due to the dangerous nature of batteries. These logistics providers will also have to ensure compliance with the various regulations governing the storage of batteries across the different countries they are looking to operate in.
Another challenge faced by specialized logistics suppliers is the remapping of spare parts logistics networks for both auto and infrastructure manufacturers. All the requirements for where the parts must be and what service level agreements should be relooked. These are crucial, especially for infrastructure manufacturers with differing service levels agreed upon with local governments or private companies.
Finally, there is a lack of returns logistics providers as the industry comes to terms with which stakeholder should be the responsible party. The lack of clarity in this regard has significant implications for the returns’ supply chain.
Toward better EV supply chain optimization
In conclusion, the EV sector is a growing industry that continues to attract new stakeholders. Wherein, the growth trajectory of these sustainable cars shows no signs of slowing down.
However, as the industry continues to expand, it is important that world governing bodies introduce rules and regulations in a well-thought-out and coordinated manner. This will ensure that new products are safely introduced to the market while minimizing any potential negative impact on the environment and society.
Furthermore, third-party logistics providers have an important role to play in the EV industry. By looking into new solutions and services, they can support battery, vehicle, and charging infrastructure manufacturers in multiple ways, such as in achieving efficiency in production.
Additionally, the supply chain industry must adopt new technologies to ensure these services are sustainable and environmentally friendly. They should refresh their transport fleets with EVs and adopt green warehousing. Doing so can ensure that the logistical and transportation support does not offset the positive changes brought about by the EV industry.
As the demand for sustainable cars and the EV industry grows, all stakeholders must work together toward success. It involves not only manufacturers and logistics and supply chain management providers but also policymakers and regulators.
With the right approach, the EV industry has the potential to revolutionize the transportation sector. It will also help achieve a more sustainable future.
It is important to be mindful of the challenges in the paradigm shift in the auto market and work proactively to address them. With collaboration, innovation, and a shared commitment to sustainability, the EV industry will be progressive for generations to come.
