BuildingaResilientGlobalEVSupplyChainAmidUncertaintySignificantrisksanduncertaintiesacrosstheelectricvehiclevaluechainmakeaflexiblestrategy,strongpartnerships,andtransparencyessential.ByPedroCorrea,CateHight,RobPick,andClayStrangerCopyright©2023Bain&Company,Inc.Allrightsreserved.RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyAtaGlance`TheInflationReductionActcontinuesthediversificationtrendandhascatalyzedinvestmentintheUSelectricvehiclesupplychain.`AnalysissuggestsasufficientsupplyofkeymineralstomeetIRArequirementsforUSorfree-tradeareasources.`However,risksincludethepossibilitythatsomeregionalandglobalsupply/demandimbalanceswillpotentiallyexistacrosstheEVvaluechain.`Amiduncertainties,buildingflexiblestrategies,transparency,andcreatingpartnershipstoderiskinvestmentsiskey.TheInflationReductionAct(IRA)hasattractedmorethan$65billionofinvestmentintheUSelectricvehicle(EV)supplychainsinceitwaspassedinAugust2022,including$49billionfornewbatteryandbatterycomponentmanufacturing.ItamountstoamassivecommitmenttotheshiftawayfromcombustionenginevehiclesandtobuildingupdomesticEVmanufacturingcapability,rightalongthesupplychain.ThisstemsfromthesubstantialtaxcreditsofferedtodriverswhobuyEVsandrequirementsthatalargeshareofrawmaterialsandcomponentsmustbeextractedandproducedintheUSorinFreeTradeAgreement(FTA)countries.TheseincludeCanada,Australia,SouthKorea,andChile.TheIRAprovidestaxcreditsofupto$7,500forthepurchaseofnewconsumerandcommerciallightvehicles,andupto$40,000formedium-andheavy-dutyvehiclessuchasbuses.TherearealsosignificantproductionincentivesformanufacturersthatlocalizeeachstepoftheEVvaluechain.Toqualifyfortheconsumervehiclecredit,vehiclesmustmeetcertainsupply-chaincriteria:EightypercentofthevalueofcriticalmineralsusedtomakethevehiclemustbeextractedorprocessedintheUSoranFTAcountryby2027,and100%ofthecomponentvalueofabatterymustbeproducedorassembledinNorthAmericaby2029.Importantly,thesecriteriadonotapplytocommercialvehicles,whichcouldleadtosupply-chaindivision.TheanticipatedacceleratedshifttoEVsfrominternalcombustionengine(ICE)vehiclesresultingfromthesubsidieswillmakeasignificantcontributiontowardtheUSmeetingitsemissions-reductiontargets.AnalysisbyourresearchpartnerRMI,anindependentnonprofitfocusedoncleanenergy,predictsthatthelifetimegreenhousegas(GHG)emissionsofanelectricvehiclethathitstheroadin2024willbearoundhalfthoseofatraditionalICEvehicle(seeFigure1).LocalizingmanufacturinginlinewiththeIRA’srequirementscouldreducethisbyafurther10%.WhiletheIRAcurrentlyoffersoneofthelargestpackagesofgovernmentincentivesforEVsandlocalizedbatterymanufacturing,othercountriesarelikelytomovetowardbuildingmorediversifiedEVsupplychains.TheEuropeanUnion’s(EU)CriticalRawMaterialsAct,forexample,commitstoincreasingtheshareofmineralextractionandprocessingandbatterymanufacturingcarriedoutwithintheEUby2030.1RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure1:TheInflationReductionActwillhelpreducecarbonemissionsthroughacombinationoffasterelectricvehicleadoptionandvalue-chainlocalizationEVadoptiondrives50%reductioningreenhouseAsautogoeselectric,focuswillshiftgasemissions,andlocalizationcoulddriveantobatterysupplychaintofurtheradditional10%reductiondecreaseemissionsVehiclelifetimeGHGemissions(MtCO2)BatteryproductionGHGemissions(KgCO2/KWh)50%reduction30%reduction10%reductionEVbatteryBatteryassemblyproductionElectrolytes/separatorVehicleAnodeassemblyCathodeOnroadCellcomponentsMiningandprocessingInternalEV:EV:EV:EV:combustionStatusquoUSbasedStatusquoUSbasedengineNotes:AnalysisisbasedontheNMC811batterychemistrywithabillofmaterialsbasedontheArgonneNationalLaboratory’sBatPaCmodel;inconsumerUS-basedcase,weassumebatteryproductionisbasedintheUSwithmaterialsavailableintheUSmarket;forstatusquocaseweassumethatbatteryproductiontakesplaceinChina,withmaterialsavailableintheChinesemarket;vehiclelifetimeGHGemissionsbasedonbothinternalcombustionengine(ICE)andelectricvehicle(EV)placedintothemarketin2024Sources:ArgonneNationalLaboratory–GREET2022;RMIanalysisIfcountriesinEurope(definedforthisanalysisascoveringmostEuropeancountriesandreferredtosubsequentlysimplyasEurope)offerequivalentlegislationinthefuture,itcouldaddtothedemanddrivenbytheUSandFTAcountriesfromthesamepartsoftheworldandincreaseregionalizedtradeflows(seeFigure2),creatingcompetitionforthesameresources.Supply-chainriskcanbeevaluatedthroughmultiplelenses,butouranalysisidentifiesthreekeyrisksforcompaniesalongtheEVvaluechain.ThesecouldalsoputgovernmenttargetsforEVadoptionandemissionsreductioninjeopardy.Theyare:•theIRAandbroadergeopolitics,whichrelatetohowmuchsupplyislegislativelyrequiredtocomefromspecificregions,and/orhowmuchdemandmaybegeneratedbytradingblocsfromthesameregionsofsupply;•globalsupply-chainresiliency,whichisaffectedbyoverallsupplyanddemand,aswellasgeographicandsupplierconcentration;and•environmental,social,andgovernance(ESG)concerns,includingtheimpactofnaturalresourcesonminingandprocessingkeyminerals.Toidentifypotentialhotspots,weassessedeachoftheserisksacross16criticalsegmentsoftheend-to-endEVbatterysupplychain,fromminingandprocessingofcriticalmineralsthroughcomponentsandbatteryproduction,toend-of-liferecycling(seeFigure3).2RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure2:InflationReductionActrequirementscouldcreatemoreregionaltradeflowsfortheEVsupplychainbetweennowand20301bEurope3Russia/China1aUSandfreetradeagreementcountries2NeutraltradingcountriesSource:Bain&CompanyFigure3:Current2030risk-assessmentscorecardidentifyingpotentialhotspotsalongtheEVvaluechainIRAandGlobalysupply-chainEnvironmental/geopoliticsresiliencysocialHigherriskIRAIRAUS,FTA,GlobalGeographicSupplierESGMediumriskannouncedsupplyandEuropesupplyandconcentrationconcentrationLowerrisksupplyandexecutionsupplyanddemanddemanddemandMiningandLithiumprocessing:NickelCriticalCobaltmineralsManganeseGraphiteProcessing:AluminumConstituentFluorsparmaterialsCathodeAnodeComponentsCathode:BindersandbatteryElectrolytesaltsproductionElectrolyteformulationOEM/SeparatorsrecyclingBattery(electrode,cell,pack)EVassemblyRecyclingNote:FTAstandsforfreetradeagreementcountries;OEMstandsfororiginalequipmentmanufacturer;ESGstandsforenvironmental,social,andgovernanceSource:Bain&Company3RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyTheseresultscanbesummarizedasfourchallengesthatneedtobeaddressed:•Thereisapotentialglobalshortageofsomecriticalmineralsthroughto2030,andinparticularalackofminingandprocessingcapacity.AnnouncedsupplyintheUS,FTAcountries,Europe,andneutraltradingnationsislessthanexpectedUS,FTA,andEuropeandemand.Thismightleadtocompetitionforsupply.•SupplyofconstituentmaterialssuchaselectrolytesaltsandbatterycomponentssuchasseparatorsthatmeetregionalcontentrequirementsisinsufficienttomeetdemandfromUSconsumervehicles.•Geographicand/orsupplierconcentrationishighacrossnearlyeverypartoftheEVvaluechain.Thatmakesitvulnerabletodisruptionfromregulation,geopoliticalconflict,naturaldisastersincludingearthquakesandhurricanes,andpandemics.•Mitigatingtheenvironmentalandsocialimpactsofbatteryproductionwhilegrowingcapacityatspeedandadheringtoglobalregulationsandstandards,inparticularforresponsiblemining,mayproveverydifficult.Below,welookindetailatthesechallengesvs.risksastheystandtoday,aswellasthekeyuncertaintiesfacingthemarket.Weconsiderwhatactionscompaniescantaketobuildflexible,reliableEVsupplychainswithgreaterresilienceandadaptabilityinthefaceofchange.Challenge1–PotentialglobalsupplyshortagesofsomemineralsLookingonlyatwhattheIRArequireslegislativelyforconsumervehicles,thereislikelytobemorethanenoughsupplytomeetUSconsumervehicledemandfromIRA-compliant(USandFTA)countriesacrossmostminerals,includinglithium,nickel,andcobalt(seeFigure4)in2030.Whilesufficientcobaltsupplyhasbeenannounced,thereisaslightshortfallinannouncedcobaltprocessingcapacity,raisingtheriskslightlyforthatcommodity.However,USconsumervehiclemakersareunlikelytobetheonlymanufacturerstoprefersuppliesfromtheUS/FTAtradingbloc.LookingatallEVdemandfromtheUS,FTAcountries,andEurope,volumefromwithinthese—aswellasfromneutralareas—isnotsufficient.Aseriousgapemergesinprocessingcapacity:Only65%to75%oftheprocessingcapacityrequiredtomeetlithium,nickel,andcobaltdemandfromtheUS,FTAcountries,andEuropewillbeavailableintheseregionsplusneutralcountriesby2030.Basedoncurrentlyannouncedcapacitythathasmovedbeyondthefeasibility-studystage,globalsupplyofthesekeyminerals(includingsupplyfromRussiaandChina,whichisnotIRA-compliant)isexpectedtobeinsufficienttomeetglobaldemandby2030.Withouttechnologicaladvancementsornewsupplyfromexistingmines,therecouldbelimitedopportunitytoincreasesuppliessignificantly.Ittakesonaveragemorethansixyearstobringnewminingcapacityinlithiumonline,andmorethanfouryearsfornickelandcobaltoncefeasibilitystudiesarecompleted.4RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure4a:The2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioThe2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioUSandFreeTradeAgreementcountriesLithium,inkilotonsLowerriskNickel,inkilotons185%LowerriskCobalt,inkilotonsMediumrisk210%90%US4,000US400USconsumerconsumerconsumer2,0001,270TotalUS2,000TotalUS300TotalUS1,000EVEV0EVEVEVEVdemanddemand200demanddemanddemanddemand27049027050010030555603550559028Mining00ProcessingDemandProcessingDemandMiningProcessingDemandMiningUSA/FTAMineralspotentiallydisqualifiedbyIRANotes:Lithiumminingincludesspodumeneandbrineandprocessingincludeslithiumhydroxideandcarbonate;nickelminingincludessulfideandlateriteoresandrefiningincludesnickelsulfate;cobaltminingincludescopperandnickeloresandprocessingincludescobaltsulfate;supplyincludesrecyclingestimates;assumesUSBEVadoptionof50%by2030;nickelsulfateprocessingcapacityestimatedbasedonallclass1supply(sulphideoretonickelmetal,lateriteoretoNPItomatte,andlateriteoretoMHP/MSP),assumingnickelmetal,matte,andMHP/MSPcouldallbeusedtoproducenickelsulfate;cobaltsulfateprocessingcapacityestimatedbasedoncobaltfinalrefiningcapacity(includebothchemicalsandmetalsprocessing)Sources:S&PProMarketIntelligence;WorldBureauofMetalStatistics;CobaltInstitute;analystreports;BainEVmarketmodel;BainanalysisFigure4b:The2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioThe2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioBroaderglobalcommunityLithium,inkilotonsHigherriskNickel,inkilotonsHigherriskCobalt,inkilotonsHigherrisk65%75%38570%4004,0003,6203002,0001,6902001,0008401,3202,0001,26010095140Processing0ProcessingFTA0930FTA0FTAMiningUSMiningProcessingUSMiningUSDemandDemandDemandUSA/FTAEuropeNeutraltradingcountriesMineralspotentiallydisqualifiedbyIRANotes:Lithiumminingincludesspodumeneandbrineandprocessingincludeslithiumhydroxideandcarbonate;nickelminingincludessulfideandlateriteoresandrefiningincludesnickelsulfate;cobaltminingincludescopperandnickeloresandprocessingincludescobaltsulfate;supplyincludesrecyclingestimates;nickelsulfateprocessingcapacityestimatedbasedonallclass1supply(sulphideoretonickelmetal,lateriteoretoNPItomatte,andlateriteoretoMHP/MSP),assumingnickelmetal,matte,andMHP/MSPcouldallbeusedtoproducenickelsulfate;cobaltsulfateprocessingcapacityestimatedbasedoncobaltfinalrefiningcapacity,includingbothchemicalsandmetalsprocessingSources:S&PProMarketIntelligence;WorldBureauofMetalStatistics;CobaltInstitute;analystreports;BainEVmarketmodel;Bainanalysis5RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure4c:The2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioThe2030outlookforthreecriticalEVsupply-chainmineralsvariesbyscenarioGlobal,EVsandbeyondLithium,inkilotonsHigherriskNickel,inkilotonsHigherriskCobalt,inkilotonsHigherrisk80%85%41565%4004103,100–3,3005,3002,500–2,7002,500–2,7004,0004,6004,600Non-EV2,000StainlesssteelFeNiNon-stainlesssteel(ex-EV)300270Non-EVNPI2,0002001,0001000ProcessingFTA0ProcessingFTA0ProcessingFTAMiningUSMiningUSMiningUSDemandDemandDemandUSA/FTAEuropeNeutraltradingcountriesChinaRussiaMineralspotentiallydisqualifiedbyIRALower-probabilitysuppliesNotes:Lithiumminingincludesspodumeneandbrineandprocessingincludeslithiumhydroxideandcarbonate;nickelminingincludessulfideandlateriteoresandrefiningincludesclass1and2refiningofnickelsulfateandmetal,NPI,andFeNi;Cobaltminingincludescopperandnickeloresandprocessingincludescobaltchemicalsandmetals;supplyincludesrecyclingestimates;lowprobabilityminesaccountsforallprojectscurrentlyinthepipelineincludingunapproved,delayed,ornewtech;EVandnon-stainlesssteelonlyuseclass1supplyincludingnickelsulfateandmetal;AlldemandisforEVsexceptasnotedSources:S&PProMarketIntelligence;WorldBureauofMetalStatistics;CobaltInstitute;analystreports;BainEVmarketmodel;BainanalysisChallenge2–LimitedregionalcapacitytoproducesomeconstituentmaterialsandcomponentsAnnouncedsupplywasassessedintwocategories:constituentmaterials(cathodebindersandelectrolytesalts)andcomponents(electrolytesandseparators).Bothproducedamixedpicture—announcedsupplyofbindersandelectrolytesappearstobesufficienttomeettheneedsoftheUSconsumervehiclemarket,whileelectrolytesaltsandseparatorsdonot(seeFigure5).EvenwhereannouncedIRA-compliantcapacityisenoughtomeetexpecteddemand,agapremainsbetweenwhatisplannedandwhatisoperatingorunderconstructiontoday.Thiscreatesexecutionrisk,asprojectstosupplysomeimportantconstituentmaterialsandcomponentshaveyettobeimplemented(seeFigure6).Lookingatindividualmaterialsandcomponents,closeto60%oftheannouncedcapacityincathodebindersisalreadyoperating.Bycontrast,electrolytesaltsandelectrolyteshavelessthan50%oftheirannouncedcapacityeitheroperationalorunderconstruction.Separators,whichshowalargegapinannouncedsupply,alsohavenonewcapacityunderconstructionyet,increasingtheriskforthatcomponent.Overall,regionalsupplyofconstituentmaterialsandcomponentsfromtheUS,FTAcountries,andEuropeannationsisfarshortofexpecteddemandacrossthoseregionsby2030(seeFigure7).Electrolyte6RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure5:AnnouncedInflationReductionAct–compliantcapacityforelectrolytesaltsandseparatorsisinsufficienttocoverexpectedUSconsumerdemandConstituentmaterialsComponentsCathodebinderLowerriskElectrolytesaltsMediumriskElectrolyteLowerriskSeparatorHigherrisk2030FCapacityvs.2030FCapacityvs.2030FCapacityvs.2030FCapacityvs.demand(kt)demand(kt)demand(kt)demand(millionsm²)140%60%130%35%TotalUSEVTotalUSEVTotalUSEVdemand=65demand=95demand=8,57050TotalUSEVNorth4,700demand=790America–50550Potential43535IRAdisqualifyingUS–consumerUS/freetrade30US–consumerNorthAmericaUS–consumerUS–consumeragreementcountriesUS/freetrade2030F2030Fagreementdemanddemand2030F2030Fcountries2030F2030F1,640supplydemandsupplydemand2030FNorthAmericasupply2030FsupplyNotes:IRA-compliantsupplyforconstituentmaterialsincludessupplyintheUSandfreetradeagreementcountries;IRA-compliantsupplyforcomponentsincludesNorthAmericasupplyonly;demandassumesUSbatteryelectricvehicleadoptionof50%by2030;constituentmaterialandcomponentdemandestimatesbasedontypicalmaterialusageperGWhSources:Bainmarketmodel;Nomura;CreditSuisse;JPMorgan;lBMOCapitalMarketsFigure6:Constructionofmanyprojectsinelectrolytesalts,electrolytes,andseparatorshasyettobegin2030FIRA-compliantproductioncapacity(inkt,exceptforseparatorsinMm²)ConstituentmaterialsComponents100%50305502,95080FundedandsitedAnnouncedAnnouncedAnnouncedOperatingandunderconstruction60FundedandsitedFundedandsitedFundedandsitedat50%orgreaterOperatingislowrisk40UnderconstructionUnderconstruction12%MediumriskOperating46%42%SeparatorHigherriskOperatingand2058%OperatingOperatingunderconstructionbelow35%0ElectrolytesaltsElectrolyteishighriskCathodebinderMediumriskMediumriskLowerriskNote:CompanyannouncementsusedtoestimatecapacityexpansionmaynotbeexhaustiveSources:NAATBattbatterysupplychaindatabase;Nomura;MorganStanley;CreditSuisse;Bainmarketmodel;companyannouncements7RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure7:AnnouncedsupplyfromtheUS,freetradeagreementcountries,andEuropeisinsufficienttomeetregionaldemandforsomematerialsConstituentmaterialsComponentsCathodebinderHigherriskElectrolytesaltsHigherriskElectrolyteHigherriskSeparatorMediumrisk2030FCapacityvs.2030FCapacityvs.2030FCapacityvs.2030FCapacityvs.demand(kt)demand(kt)demand(kt)demand(millionsm²)50%25%80%110%1752601,7602,16525,30023,47590FTAFTA602030F2030F2030F2030FNorthAmerica2030FNorthAmerica2030FsupplyEVdemandsupplyEVdemandEVdemandEVdemand2030F2030FsupplysupplyUSA/FTANorthAmerica–PotentialIRAdisqualifyingEuropeNeutraltradingcountriesNotes:DemandassumesUSbatteryelectricvehicleadoptionof50%by2030;constituentmaterialandcomponentdemandestimatesbasedontypicalmaterialusageperGWhSources:Bainmarketmodel;Nomura;CreditSuisse;JPMorgan;BMOCapitalMarketssaltsshowthebiggestgapbetweensupplyanddemand,followedbycathodebinders,andthenelectrolytes.Thepositiononseparatorsisbetter,butaproportionofsupplyfromNorthAmericamaynotbeIRA-compliantbecausethecountryinwhichthecompany’scontrollingorganizationisbasedmakesitineligible.Whenallgeopoliticalandtradingregionsareincluded,globalsupplycomfortablycoversdemand(seeFigure8).However,thiswouldleaveoriginalequipmentmanufacturers(OEMs)andsuppliersheavilyreliantonChineseandRussiancapacity.Challenge3–HighgeographicandsupplierconcentrationThegeographicconcentrationofsuppliersofconstituentmaterialsandcomponentsissignificant.Aswellastheriskposedbytradeorpoliticaldisputesbetweencountries,theCovid-19pandemicshowedhowsupplychainscanbedisruptedbyshutdownsinmarketswheresupplyishighlyconcentrated.Extremeweatherevents,whicharebecomingbothworseandmorefrequentduetoclimatechange,couldresultinsimilarshortages.Separately,therearepotentialsupplierconcentrationrisksalongthevaluechain.Inelectrolytesaltsandseparators,forexample,thetopthreesuppliersprovide70%to80%oftheannouncedcapacity.Concentrationislessincathodebindersandelectrolytes,butthetopthreesuppliersstillprovidearound50%oftheannouncedsupply(seeFigure9).8userid:246491,docid:149424,date:2023-12-22,sgpjbg.comRMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyFigure8:AnnouncedglobalsupplycomfortablycoversdemandacrossallfourproductsConstituentmaterialsComponentsCathodebinderLowerriskElectrolytesaltsLowerriskElectrolyteLowerriskSeparatorLowerrisk2030FCapacityvs.2030FCapacityvs.demand(kt)2030FCapacityvs.2030FCapacityvs.demand(kt)demand(kt)demand(millionsm²)140%115%760135%130%70,2004705406,00040553,0004,4952030FFTAEV2030FFTAEVFTAFTAEVFTAFTAEVsupplyUSEVsupplyUSEVNorthAmericaUSEVNorthAmericaUSEV2030F2030F2030F2030F2030F2030FEVdemandEVdemandsupplyEVdemandsupplyEVdemandUSA/FTAEuropeNeutraltradingcountriesChinaRussiaNon-EVNotes:DemandassumesUSbatteryelectricvehicleadoptionof50%by2030;constituentmaterialandcomponentdemandestimatesbasedontypicalmaterialusageperGWhSources:Bainmarketmodel;Nomura;CreditSuisse;JPMorgan;BMOCapitalMarketsFigure9:HighgeographicconcentrationcoupledwithlimitedsupplierdiversificationintroducesasinglepointoffailureriskforsomesupplystepsGeographicconcentrationriskSupplierdiversificationrisk(basedonproductioncapacity)(basedonproductioncapacity)2030Fproductioncapacitybycountry2030Fproductioncapacitybycompany(kt,exceptseparatorsinm2)(kt,exceptseparatorsinm2)100%USJapanOtherOtherUSOther100%Other80FrancePolandUSKoreaJapan93%producersJapanOtherSouthproducersOtherTop3USKoreaproducersproducers60Other78%producersTop3producers99%China40China98%87%Top3producers92%ChinaChina69%64%71%80%Top3Top3producersproducers2054%46%0ElectrolyteElectrolyteSeparatorCathodeElectrolyteElectrolyteSeparatorCathodesaltsformulationbindersaltsformulationHighbinderHighHighHighMediumHighMediumRleivseklHighSources:Bainmarketmodel;Nomura;CreditSuisse;JPMorgan;BofAGlobalResearch;UnitedStatesGeologicalSurvey;companyannouncements9RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyChallenge4–AligningtheneedtogrowcapacitywithESGrequirementsIntheEVsupplychain,strongenvironmentalandsocialrisksaroundresponsibleminingpracticesexist,includingcarbonemissionsaswellascommitmenttobroaderESGissuessuchashumanrights.Oneexampleisincreasingdemandfrominvestorsandconsumersforcompaniestobetransparentaboutissuessuchaschildlaborandemissionsacrossalltheirinputsandsupplierpracticesalongthevaluechain.ThetransitiontoEVswillalsorequireasignificantshiftinjobsandtrainingintheexistingdomesticcarindustry.Futuresubsidiesandgovernmentsupportfornewinvestments(especiallybatteryandOEMinvestments)maybeatriskunlessthereissufficientcommunityinvestmentintrainingandlocalhiring.Whenitcomestothecriticalbatterycomponentsoflithium,nickel,andcobalt,therearesomesignificantESGrisks.Oneishuman-rightsabuses—theDemocraticRepublicofCongoistheworld’sbiggestcobaltproducer,andrecentresearchhasfoundforcedandchildlaborstilloccursinsomeofitsmines,despitechangesmadeinresponsetoinvestorandcustomerpressure.Anothercomesfromthegreenhousegasesreleasedduringminingandprocessingoftheminerals,aswellaspotentialharmtobiodiversity.Alargeproportionoftheworld’sreservesofallthreekeymineralsareinbiodiverseareas—around70%inthecaseofcobaltmining.RecentpolicydevelopmentshavemadeprotectionofhabitatsandspecieshigherESGpriorities.Forexample,theGlobalBiodiversityFrameworkagreedattheCOP15summitinDecember2022commits196membernationsto“haltandreverse”biodiversitylossby2030.Giventhelegitimatesocialandregulatorypressureforenvironmentalprotection,companieswillalsoneedtoproactivelyaddressmeasuressuchaslimitsonwateruseinminingiftheyaretogettheirsitesupandrunningquickly.FailingtoaddressESGconcernscanaddriskanduncertaintyinminingoperations.ThreebroadareasofuncertaintythatwillaffectthemarketanddecisionmakingAsthisriskassessmentlooksaheadto2030,thereisconsiderableuncertaintyaroundtheseverityandpotentialoutcomeofeachofthesechallengesandtheirimpactonEVmakersandsuppliers,aswellasonemissions-reductiontargets.Thefourchallengesdescribedabovearebasedontoday’sbestavailableinformation,butitwillbeimportantforcompaniesintheEVsupplychainandgovernmentspursuingEVadoptionandemissions-reductiontargetstounderstandthatthescaleofeachchallengecouldchangedrastically.Theuncertaintiesinaddressingtheidentifiedchallengesfallintothreebroadcategories:•supplyavailability,linkedtoexecutiontimingofnewcapacitybothinminingandprocessingofkeyminerals,potentialadvancesintechnology,andthetotalglobalandregionalsupplyofconstituentmaterials,components,andbatteries;10RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertainty•furtherregionalizationofthesupplychainasaresultofgeopoliticsandgovernmentpolicies,includingUSrefinementsoftheIRA,requirementsorrestrictionsfromothercountriesforlocalizationofEVsupplychains,andthelevelofcoordinationacrosstradingblocs;and•thestrengthofEVdemand,whichcouldbeaffectedbyadjacentdependenciessuchastheavailabilityofsupportinginfrastructureincludingchargingpoints,thetake-upofalternativetechnologies(forexample,solidstatebatteries),andtotalEVcostcomparedwithICEvehicles.Alloftheseelementswillaltertheriskheatmapshownearlier.Itispossible,forexample,thattherewillbealeapforwardinminingtechnology.Techniquessuchasdirectlithiumextraction(DLE)aregainingtraction,withChileandArgentinabothaimingtoimplementDLEbetween2025and2030.DLEmaybeabletosignificantlyincreasetheamountoflithiumproducedfromasitetoday,throughimprovedrecovery.Asurgeinsupplycouldreduceboththeglobalandregionalsupply/demandgapforthisresource.Attheotherendofthespectrum,anydelaysorcancellationaffectingannouncedminingprojectsincountriessuchasArgentinawillcausegreatershortagesthancurrentlyanticipated.Theuncertaintiesaresuchthathundredsofdifferentscenarioscouldplayoutoverthecomingyears.TherearethreeextremebutplausiblescenariosthatcouldresultinEVsupplychainsdevelopingverydifferentlyfromthepathdescribedabove:•Drasticglobalconflict—wheregeopoliticaltensionscontinuetoriseandtradeblocshardenfurther,resultinginthecreationoffullylocalizedorregionalizedsupplychains.ThiscausessupplyofmaterialstobecomemoreconstrainedandEVsupportinginfrastructuretobedelayedduetosupply-chainissues,slowingoveralladoption.•Technologicalsupplyshock—wherenewtechnologiesunlocksignificantnewsuppliesofcriticalminerals,leadingtolowerEVprices,fasteradoption,andanoverallrelaxationofemphasisbygovernmentsontheneedtolocalizethesupplyofsomecriticalminerals.•Non-EVrevolution—wheretheIRAandothergovernmentsupportprogramsarerolledback,increasingpricesanddelayingadoptionofEVs,duetorenewedconcernondebtlevelswithingovernments.Duringthisdelayedrollout,apotentialalternativelow-carbontechnologytoEVsbeginstoshowpromise,furtherdelayingconsumeradoptionandgovernmentpushes.Whilenoneoftheabovesituationsareexpectedtobethebasecase,orevennecessarilylikely,companiesintheEVsupplychainneedtobeawareofallpossibilitiesandplanforarapidlyevolvingandhighlyuncertainfuture.WhatcanOEMsandsuppliersdonowtobuildaresilientfuturesupplychain?TheIRAhassentaclearmarketsignalregardingEVadoptionandtheneedtobuildouttherequiredinfrastructure.However,EVsupply-chainparticipantsremaininanuncomfortableposition.11RMIBain&Company,Inc.BuildingaResilientGlobalEVSupplyChainAmidUncertaintyUncertaintycloudsimportantaspectsofthedecision-makingprocess,butnocompanycanaffordtositstill.Sowhatcantheydo?First,theyshouldthinkofeachinvestmentaspartofaportfolio.Someinvestmentswillworkinnearlyallscenarios.These“noregret”movesaretypicallythefirstinvestmentstomake.Otherswillbesmall-tomedium-sizedbetsthatcreateoptionsandflexibilityandwillbevaluableundermanyscenariosand/orsupportcriticallearningprocesses.Exampleshereincludepilot-scaleinvestmentsorsmallernewcapabilityinvestments.Thelastisbigbets—one-waydecisionswithlargecapitalallocationwherefuturescenariosprovideconflictingviewsonthepotentialpayoffs.Forthesebigbets,companieswillneedstrongconvictionsinhowtheyviewthefuture,despitetheinherentuncertainty.Second,companiescannolongerrelyonsettingafive-yearplan,andthenfollowingittotheletter.Intoday’senvironment,itisimportanttoidentifyandmonitorsignpoststhatcouldpointtoafuturemuchdifferentfromtheoneoriginallyexpectedandadjustthestrategyinrealtimeasneeded.Third,companiesneedtoinvestinbuildingtransparent,robust,andcircularsupplychains.Theyshouldcarryoutthenecessaryduediligenceontheirinputstoclearlyidentifytheirmostcriticalmaterials,wherethesematerialscomefrom,therisksandpotentialfailurepointsofeachone,andindividualmitigationplans.Additionally,thistransparencycanallowcompaniestoquicklyaltertheirowninternalprocessestomeetspecificrequirementsindifferentregionswheretheyoperate.Fourth,companiesshouldthinkexpansivelyabouthowtheycanbuildpartnershipsandstrikelong-termagreementstohelplimittheimpactofsomeuncertaintiesandderisklargecapitalinvestments.Forexample,batteryrecyclerscanbuildpartnershipswithOEMs,batterymanufacturers,andotherelectronicsproviders,tobothbuildtheirfuturesupplyofbatteriesandensuretheyhavebuyersfortherecycledmaterialsateconomicallyfeasiblepricepoints.Finally,itisimportanttoinvestincommunityandgovernmentoutreach.Onthegovernmentside,companiesneedtoclearlyunderstandcurrentEVpoliciesandseektoaddresspolicymakersonissuesofparticularconcern,lookforwin-winopportunities,andtrytoanticipatefuturepolicyshifts.Locally,alllargecapexprojectsrequirecommunitysupporttosomedegree,andthisisespeciallytrueinmining.Companiesneedtoinvestincommunityoutreachtobuildmutuallyagreeableoutcomes,whetherthroughlocalinvestment,protectionofcriticalresources,orjobtrainingandeconomicrevitalizationefforts.Thiswillhelpensuresmoothcapacitybuildupinthefuture.ShapingthefutureoftheglobalEVsupplychainTheintroductionoftheIRAhasseentheUSleapforwardinincentivesfortheenergytransition,withtaxcreditsforEVsandmeasurestolocalizethebatterysupplychainbothkey.Thebenefitsinreducingfutureemissionsareundeniable,andwithothercountrieslikelytoregionalizemoreoftheirEVsupplychains,companiescannolongersitontheirhands.TheprecisedirectiontheglobalEVmarketandsupplychainwilltakeisunclear,butOEMsandsupplierscannotwaittomaketheirno-regretmovesorconsidertheirbigbets.Theyshouldbeginbuildingtheagilitythatwillallowthemtosuccessfullycompeteforlimitedresources,withoutdelay.12Boldideas.Boldteams.Extraordinaryresults.Bain&Companyisaglobalconsultancythathelpstheworld’smostambitiouschangemakersdefinethefuture.Across65citiesin40countries,weworkalongsideourclientsasoneteamwithasharedambitiontoachieveextraordinaryresults,outperformthecompetition,andredefineindustries.Wecomplementourtailored,integratedexpertisewithavibrantecosystemofdigitalinnovatorstodeliverbetter,faster,andmoreenduringoutcomes.Our10-yearcommitmenttoinvestmorethan$1billioninprobonoservicesbringsourtalent,expertise,andinsighttoorganizationstacklingtoday’surgentchallengesineducation,racialequity,socialjustice,economicdevelopment,andtheenvironment.RMIisanindependentnonprofitfoundedin1982thattransformsglobalenergysystemsthroughmarket-drivensolutionstoalignwitha1.5°Cfutureandsecureaclean,prosperous,zero-carbonfutureforall.Formoreinformation,visitwww.bain.com
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