Upcoming shifts in the automotive industry due to Electric Vehicles – How prepared are you with critical value chain risk monitoring?

Under pressure from various national regulatory environments to drastically reduce average CO2 emissions per mile of their vehicles, car manufacturers and their suppliers have had to implement  very rapid changes to their product line and factories to convert from predominantly gasoline to Electric Vehicles (EV) in this decade. Other related market trends also have been brewing.

The February 2021 supply chain Executive Order from the Biden Administration, called for a 100-day supply chain review of  various industry segments including electric vehicle, semiconductor  and minerals, signaling  the strategic importance of this to the US Manufacturing sector. In 2020, the electric passenger car market grew by  triple digits in EU countries, with China being the leader in  overall volume,  according to the WEF-Statista report. Post-Covid growth estimates are even higher. EVs and hybrid-electric vehicles are projected to account for an estimated 30% of all vehicle sales by 2025. All these indicate a fast-growing market trend for EVs, and countries as well as companies racing to capture competitive advantage.

Growth Challenges

This  well-intentioned push to align the automotive industry to the growing population demand for carbon-free individual mobility, imposes rapid changes on the industry and its players, and increases  the risk of unforeseen supply-delivery related issues. 

For instance, the geographic concentration of some key components like the battery elements in China, South Korea and Japan can lead to risks due to geopolitical tensions, natural disasters or higher shipping costs.  The availability of skilled labor for the assembly lines in some other countries can be identified as challenges to monitor in order to secure volume and price. 

From a raw material and component perspective, challenges include the availability, costs and profitability.   Key raw materials face multiple issues, viz., Lithium (shortage due to mining economics, technical limits), Nickel (issue with  refinement, Asia being cheaper), Cobalt (DRC sourced, conflict minerals and labor issues), and semiconductors (severe supply crunch potentially till 2022)..

Accessibility (and environmental impact) of the hundreds of pounds of rare minerals needed by vehicles could also rapidly become an issue, with sustainability and relevance toward the initially intended goal to combat climate change becoming top considerations. Other potentially trend- reversing complexities include recyclability of these batteries in a circular economy.

Market trends & Risk perspectives: 

Market is seeing increasing investments by vehicle manufacturers in battery makers in an attempt to integrate upstream to secure this costliest part of the EV. Some are attempting to make batteries as well. Another trend, considering the trade volatility and location concentration of key raw materials is on-shoring or near-shoring of the supply chains. The market dynamics and news will continue to evolve and shape leaders in this segment. 

Alternate Products: Besides EV, Hydrogen Vehicles show promise for  a bright future. How can one  confidently navigate in this fast evolving environment, without a clear visibility of the multiple risk factors from key business partners and evolving regional regulations?

While we commonly admit that artificial intelligence, machine learning and advanced analytics contribute to  the medical (from diagnostic tools to operations capability improvement) and  the financial  (computing large amount of data to rapidly extract trends) sectors, the same cannot be said about  enablement of this technology for strategic business decisions such as risk assessment/mitigation. Right after a low probability disaster strikes, like Fukushima in Japan, knowing which of your suppliers are impacted, even if just logistically, and having a corrective action plan already in place, can make a significant difference in your ability to handle these crises.

Thanks to the 24/7 accessible platform from Vertaeon that synthesizes a multitude of customized risks from your specific market, you’ll be able to gain a competitive advantage by anticipating actions before everyone else. This can be for existing suppliers, new suppliers, or partners needed to manufacture  electric vehicle products. Vertaeon effectively addresses several of the abovementioned indicators including operational, geopolitical, non-compliance and location risks.

While it is critical to have  risks compiled and/or insights developed, this alone is not enough.  Loss minimization and market leadership depend on how effectively these insights can be leveraged for  risk mitigation. An example of such learning and application comes from Toyota, with their focus on business continuity after the Fukushima disaster.  Toyota was one of the first companies in the automotive industry to anticipate the current global semiconductor/microchip shortage. As a result, they have been able to secure inventory, not only saving money on the components but most importantly limiting the shortage impact on the vehicle production output and potentially gaining market share as a result. 

Some Companies have an internal business continuity team that Vertaeon’s SaaS tool can support and be integrated with. Other smaller players who do not necessarily have a dedicated team, can utilize Vertaeon as an external support group to provide this guidance to upper management. 

Yes, for business decisions in particular, knowledge is power! Vertaeon offers a highly economical solution with our experience in the manufacturing industry in general, and the automotive  industry in particular, to provide you with the business intelligence you need to pivot your company through these tumultuous times of uncertainty and change.

Authors: Rekha Menon-Varma & David Chouvelon, Vertaeon LLC