What are the key obstacles to a greener EV supply chain?

The electric vehicle (EV) industry is undergoing a profound transformation, a process that is completely reshaping the automotive industry. With shifting consumer demand and preferences, EV manufacturers need to be agile with their upstream, midstream and downstream supply chain segments. This repositioning of how OEMs are approaching their supply chains, driven by sustainability goals, regulations and technological advancements, signals a significant shift for the EV market.

Crucial to this transition are EV battery supply chains, facilitating the production, distribution, and reuse of lithium-ion batteries—the backbone of EVs. With automakers increasing their efforts to electrify and governments imposing strict emissions rules, the need for efficient and green EV battery supply chains is at an all-time high.

Advancements in battery technology and mass production have driven down costs, making EVs increasingly affordable compared to fossil fuel-powered vehicles. This market change not only encourages EV adoption but also highlights the need for adaptable and robust supply chains to handle growing battery demand.

Getting supply chains right during the EV transformation will be crucial for the future resilience of the automotive industry.

Challenges in EV battery supply chains

In line with current industry trends, EV battery supply chains are confronted with a multitude of challenges that necessitate innovative solutions. Foremost among these challenges is the establishment of recycling facilities, demanding significant upfront investments in capital and time. While industry reports indicate that lithium-ion battery recycling can achieve up to 95% efficiency for certain materials, environmental concerns loom large over EV battery supply chains, particularly regarding the disposal of toxic battery components, which, if mishandled, can lead to soil contamination and ecosystem risks. Leveraging expertise in hazardous goods management, companies need to implement stringent protocols and establish specialised warehouses to ensure safe battery handling and transportation.

Additionally, collaborating with suppliers to develop sustainable extraction methods is crucial. This would lead to significant growth in the lithium-ion battery chain, underscoring the importance of ethical sourcing practices. According to a McKinsey analysis, the entire lithium-ion battery chain, from mining through recycling, could grow by over 30% annually from 2022 to 2030, when it would reach a value of more than US$400bn and a market size of 4.7 TWh.

The critical role played by supply chains

Companies can contribute to the sustainability of EV battery supply chains by establishing efficient recycling channels and routes. Innovative end-to-end facilities, integrated with world-class infrastructure, enable seamless connections across the supply chain, facilitating battery transportation and recycling.

Relentless innovation and investment in research and development are essential to overcome technical barriers and drive positive change in the EV battery supply chain landscape. Collaboration with technology firms can help develop advanced tracking systems, optimise transportation routes and reduce carbon emissions associated with battery transportation.

In addition to transportation and storage, players are prioritising safety and environmental stewardship in EV battery handling. This includes dedicated warehouses for dangerous goods that adhere to strict regulatory standards and industry best practices, mitigating the risk of accidents and environmental contamination. Rigorous safety protocols and employee training ensure the safe and responsible handling of EV batteries throughout the supply chain.

What’s required by companies and governments?

A multi-faceted approach that involves government support, international cooperation and industry partnerships is essential for creating productive, sustainable EV battery supply chains. By using government incentives, working with developing economies and partnering with other players in the automotive sector, companies and governments can support a more sustainable future. Both companies and governments have a crucial part to play in promoting positive change in the automotive industry.

The introduction of the US$369bn Inflation Reduction Act 2022 in the US and the European Union’s €250bn (US$268bn) Green Deal Investment Plan signals significant government initiatives to bolster the EV supply chain. These subsidies provide vital funding to expedite the transition to sustainable mobility, with the US IRA creating approximately 100,000 green jobs since its announcement last year. However, concerns over potential trade tensions and accusations of green protectionism necessitate governments to ensure that these subsidies foster fair competition and global cooperation while driving innovation and sustainability in the EV battery supply chain.

Working together with developing economies is also essential, in part because these markets have vital raw materials for EV batteries. There is a pressing need to work together to set up sustainable supply chains and extraction methods for ethical material sourcing. Developing economies, which produce more than two-thirds of global greenhouse gas emissions, need help to switch to sustainable energy systems. By building partnerships with developing economies, companies can support economic development and tackle environmental issues in the EV battery supply chain.

Looking ahead to the next decade, the evolution of EV battery supply chains will continue to reshape the automotive industry landscape. Industry stakeholders and policymakers must remain vigilant, anticipating challenges and seizing opportunities. With projections showing exponential EV growth, the demand for sustainable batteries will intensify.

Overall, supply chains play a pivotal role in shaping the sustainability and resilience of the EV industrty. Through innovative solutions and unwavering commitment to excellence, players can drive positive change in the automotive industry, laying the groundwork for a greener and more sustainable future.

About the author: Bill Garrett is Global Head of Automotive at DP World