Electric Vehicles Require Lots of Scarce Parts

 

"The car industry is staging a revolution -- a transition from the gasoline and diesel engines that have powered vehicles for over 130 years to a battery-propelled future.

But a key part of the reinvention remains unfinished and filled with risk: the supply chains for the parts needed to assemble fully electric vehicles.

The guts of EVs -- high-capacity batteries, electric motors and the sophisticated electronics that mesh them together -- are nothing like the engine blocks, transmissions and drive shafts that move internal-combustion cars and trucks.

"This industry is going through a transformation like it hasn't seen since World War II," says Akshay Singh, a partner in PricewaterhouseCoopers's automotive practice. "The whole supply structure is going to change."

On the upside, EVs require vastly fewer parts: An electric-car motor typically has only about 20 moving parts, compared with 200 or more in an internal combustion engine, according to Assembly magazine.

Yet the industry is young, and finding reliable sources for EV parts is daunting. Vehicle makers are deciding which parts to make on their own, sometimes through joint ventures, and which to source from their traditional component makers -- which themselves are undergoing radical restructurings to support the new electric world.

"You can't take anything that you learned through [internal-combustion engines] and apply it to the EV supply chain," says Arun Kumar, a managing director at consulting firm AlixPartners.

Some pinch points: The batteries and most of the EV motors rely on unusual metals that can be costly and hard to obtain. The vehicles' electronics require new chips from a semiconductor industry still working through pandemic-era backlogs. Even the long aluminum trays that hold batteries beneath the floors of electric vehicles could end up scarce, Mr. Singh says.

Here's a look at the status of EV components -- and the supply chains that feed them -- as the industry gears up to make tens of millions of electric vehicles a year around the world.

Batteries

The good news: The cost of the lithium-ion batteries used in most EVs has fallen by more than half over the past five years. That lets EV makers pack in more batteries to allow a vehicle to go farther on a charge, as well as introduce lower-priced models.

But demand is surging, and battery makers face a number of hurdles. For one, the complexity and global logistics of the battery-making process -- from procuring raw materials, to refining them, to making the battery cells, to assembling battery packs -- could lead to bottlenecks.

"There are supply chains within supply chains," says Edgar Faler, a senior industry analyst at the Center for Automotive Research. "There are a lot of things that have to go right."

One of the biggest potential problems is finding sufficient and affordable supplies of key raw materials, including lithium, nickel, manganese and cobalt. Much of the mining and processing of these metals is based in just a few countries. Two-thirds of cobalt is mined in the Democratic Republic of the Congo, where some workers face dangerous conditions that have prompted protests from human-rights groups. Australia mines about half the lithium, while nickel is centered in Indonesia.

The refining of these materials for use in batteries is even more concentrated: China processes some 70% of the world's lithium and cobalt, and 99% of the manganese, according to PricewaterhouseCoopers. China also dominates the market for the parts that go into batteries, such as cathodes and anodes, as well as the production of batteries themselves.

"The issue is going to be around supply-chain risk," says AlixPartners' Mr. Kumar. "Countries like China could decide they don't want to offer the latest and greatest highly purified nickel. That could put the U.S. industry at a disadvantage."

Battery makers, in fact, have been using more nickel, which can boost a battery's energy density, as they seek to expand the driving range of EVs. Some analysts project that the high-grade nickel that batteries require could be in short supply as EV sales rise.

Already, prices for nickel and several other battery ingredients have been soaring. Battery-grade cobalt was up 53% from Jan. 1, 2020, through October 2022, nickel sulfate rose 56%, and lithium carbonate soared 979%, according to Benchmark Mineral Intelligence. The consulting firm says these increases mean battery prices could rise this year for the first time since at least the early 2000s.

Meanwhile, a few car makers are already predicting battery shortages. "Put very simply, all the world's [battery] cell production combined represents well under 10% of what we will need in 10 years," RJ Scaringe, chief executive of EV startup Rivian Automotive Inc., said in April. He added that "90% to 95% of the battery supply chain does not exist."

Others don't believe there will be a battery shortage anytime soon. The expansion of EV manufacturing "will start to put some strains on the [battery supply] system," says Ram Chandrasekaran, principal analyst of transport and mobility at energy consulting firm Wood Mackenzie. But "we don't forecast a deficit in battery packs for the next 10 years."

Wood Mackenzie says car makers won't flood the market with EVs but instead pace their production to the availability of batteries and the minimum level of output needed to meet government greenhouse-gas mandates.

Mr. Chandrasekaran also says the recently passed federal Inflation Reduction Act, which provides tax credits for producers of battery packs whose rechargeable cells are sourced domestically, "will go a long way in stabilizing the United States battery supply over the next five to 10 years."

More car makers plan to build new U.S. battery plants, many of them in joint ventures with Asian battery makers. Among them, Tesla Inc. is working with Panasonic Holdings Corp., General Motors Co. and Honda Motor Co. have separately joined with LG Energy Solution Ltd., Ford Motor Co. is working with SK Innovation, and Stellantis NV has joined with Samsung SDI Co.

But these new factories can have hiccups. GM last month dialed back its EV sales target, citing startup issues with a new battery plant in Ohio. GM had expected to sell 400,000 EVs from early 2022 through the end of next year but pushed out the time frame until mid-2024.

Car makers also are signing long-term supply contracts for access to battery raw materials. Moreover, the recycling of batteries from EVs as they are scrapped at the end of their life will provide another source of the minerals. AlixPartners' Mr. Kumar says 20% to 40% of EV raw-material demand could be met through recycling by 2030.

Meanwhile, some EV makers, including Tesla and those in China, are using a different battery chemistry, lithium iron phosphate, for certain vehicles. These batteries don't require nickel or cobalt and so are less costly than lithium-ion ones, though they can't store as much power, says Mr. Kumar.

Electric motors

The majority of motors used in today's EVs rely on permanent magnets, which produce a constant magnetic field that helps spin a motor's rotor and, in turn, power the wheels.

But these magnets require costly rare-earth metals such as neodymium and dysprosium. As with battery ingredients, the dominant supplier is China, and producing the metals can cause pollution, which could raise issues for investors who shun companies linked to environmental damage.

EV makers have a recourse: alternating-current induction motors, which have no permanent magnets. Instead, they use coils of copper wire to create a magnetic field that drives the motor.

AC induction motors -- invented in the 19th century and widely used in household appliances and industrial applications -- are less expensive but also less efficient. That can reduce a vehicle's driving range unless battery storage is boosted.

Yet as battery capacity grows and many experts expect the cost of batteries to resume their decline, the industry will move away from motors that require rare-earth metals, Mr. Kumar predicts. Tesla has long used AC induction motors in some models and other car makers are now considering them.

On top of this, analysts expect more vehicle makers to outsource some of their motor needs -- which could expand industrywide capacity by increasing the number of sites making motors -- rather than making them in-house, as most currently do.

Overall, analysts don't see the motor supply posing as big a hurdle as batteries.

Electronics

EVs are like rolling computers. Consulting firm P3 Group says they require more than twice as many semiconductor chips as internal-combustion vehicles -- some 1,300 versus 600.

Chips control everything from how EVs take electricity from their batteries to how that juice is applied to the motors to how the batteries are recharged. They convert the batteries' direct-current output to AC, which most motors need. And as with most vehicles, chips manage braking, climate control and safety features like air bags.

All that demands a robust supply chain, something made glaringly clear the past few years as car makers had to limit output due to a chip shortage.

Analysts don't foresee the EV industry facing chip shortfalls in the future. Mr. Kumar, for one, is optimistic that plans by several chip makers to build more U.S. plants, spurred in part by the $280 billion federal Chips and Science Act passed this year, will help boost supply to meet the EV ramp-up.

One wild card, he says, is how much vehicle makers continue to rely on Taiwan, the world's dominant semiconductor maker. Taiwan "has its own geopolitical issues," Mr. Kumar says, referring to its fraught relationship with China, which claims the island nation as its own.

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Mr. Ziegler is a former Wall Street Journal reporter and editor. Email him at reports@wsj.com.” [1]

1. Alternative Energy (A Special Report) --- Electric Vehicles Require Lots of Scarce Parts. Is The Supply Chain Up to It? As the car industry gears up to expand EV output, here's a look at the status of the components it will need
Ziegler, Bart. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 14 Nov 2022: R.1.