Automakers playing catchup for EVs supply chain

Supplies for a Supply Chain

Again, it’s not only identifying the suppliers best able to deliver necessary electronics, but also competing for their business. And, they’re vying for these suppliers not only with each other, but with, say, mobile phone manufacturers as well. This means that the supplier is in the driver’s seat. “The power relationship on the supply chain has changed,” said Cullen. “Different components suppliers will have dramatically more power than they have had previously.”

Tesla has had a history of missing production deadlines. Reasons for these glitches vary, but the company acknowledged that one major difficulty lies with its supply chain: It relies on single suppliers for many key components. “While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source,” the company said in a statement. “To date, we have not qualified alternative sources for most of the single sourced components used in our vehicles and we generally do not maintain long-term agreements with our suppliers.”

That makes the company far more vulnerable to delays when suppliers down the chain miss their production deadlines.

Tesla isn’t alone, however, in scrambling for suppliers of critical components.

The automotive industry has developed a supplier ecosystem that is based on proximity. Suppliers build factories close to automakers. Tier two suppliers build plants close to tier one suppliers. All this allows auto manufacturers to source components quickly and efficiently from factories located 100 miles or less from the assembly plant.

The EV fundamentally alters this ecosystem. Sourcing becomes far more globalized. Tier ranking becomes meaningless.

The EV Revolution

Manufacturers are scrambling to figure out the logistics necessary for such a system. “The supply chain geography will be different,” said Cullen.

Long-held relationships must change as well. As the battery manufacturers also indicate, supplier’s cross national boundaries. So, it isn’t a matter of, say, Japanese battery companies supplying Japanese car manufacturers. Nor can EV manufacturers source batteries from plants nearby.

This points out another vexing issue: safety. Lithium-ion batteries are considered hazardous materials. If they will be sourced globally, how will they be packed and transported? There’s some consensus that batteries will be moved by reefers in containers, but details are far from set.

Volvo Cars has laid down the gauntlet. It has pledged to produce only electric or hybrid powertrains going forward and predicts that by 2025, 50% of all its cars will be electric only vehicles. Other manufacturers will likely follow suit. In September, Daimler announced that it would stop developing new internal combustion engines and focus solely on designing and developing electric propulsion.

Designing is one task. The nitty-gritty of production is quite another.

“The business model of electric vehicles is different. The role that intellectual property plays within the supply chain is different,” concluded Cullen.