It's time to power-up the EV supply chain

By 2030, it is estimated that electric vehicles (EVs) will account for about 30% of all vehicle sales. This massive growth has led to two types of companies locked in a fierce battle for EV market share:

The “giants”—traditional automotive original equipment manufacturers (OEMs) trying to create an entirely new business while continuing to support their core business of traditional internal combustion engine (ICE) vehicles.

The “disruptors”—growing technology companies attempting to enter the EV market. These newer entrants are discovering that while having great technology and innovation at their core is essential to breaking into this market, their staying power rests in being able to manufacture the vehicles people actually want to buy.

One of the biggest keys to the success of both giants and disruptors will be learning how to quickly adjust their supply chains to create a business that can capitalize on the growing preference for EVs over ICE-powered vehicles.

The EV market is projected to skyrocket in the next 10 to 15 years, with significant momentum really beginning to build within five years. What’s driving this growth isn’t a secret: Consumers around the world have become far more aware of sustainability and climate change, while numerous countries are pursuing ambitious government-led environmental agendas. In the past 10 years, the cost per KW/H of EV batteries has dropped from $1,110 down to $137, and analysts predict it may fall below $100 in the next few years, which should make EVs more affordable.

Figure 1: Worldwide plug-in vehicle population

Strengths, weaknesses and challenges

Rapid industry growth and changing market dynamics are stressing EV supply chains which, in turn, is creating challenges for both giants and disruptors. How these companies act in the next few years will largely determine who leads the EV manufacturing, battery and charging markets.

Giants, of course, have long-established, sophisticated operations in vehicle production, supply chain, and supplier management. They know how to build cars and have the established supply chain to do it. But now they need to balance the simultaneous production of ICE-powered vehicles and EVs. This requires developing EV battery and powertrain partners while continuing to foster relationships with current powertrain suppliers.

Disruptors face a more daunting task. They have the technology that’s essential to EVs and a culture of innovation that enables them to continually push their thinking. But they need to build an entirely new supply chain from scratch—something that’s taken the giants decades to do—and put the structure in place to manage supplier performance and quality.

Trying to keep pace with both the giants and disruptors are the industry’s suppliers. Traditional ICE powertrain suppliers will have to evolve to support both current and future development and production needs across ICE- and EV-related products. One way to do that is to split their business in two, one part serving the traditional ICE market and the other focusing on the rapidly emerging EV/connected, autonomous, shared, electric (CASE) sector. A number of leading suppliers have already taken steps in that direction.^v

Giants, disruptors and suppliers are feeling the pressure across three areas in the supply chain: Process and structure, organization and technology.

Process and structure

How do companies make the transition from prototype manufacturing to full-scale production?

• Identify the new suppliers the company needs to partner with.
• Giants and Disruptors both must decide whether to build manufacturing capabilities or buy them.
• Reimagine metrics for supplier management and risk—giants already have well-established supplier performance programs in place, but these may be foreign to disruptors.
• Develop a localization strategy for battery pack assembly and other key components.
• Secure supply for critical materials, including materials with supply challenges such as conflict minerals.
• Develop a short and long-term battery strategy with all functional areas engaged (engineering, supply chain, finance).
• Communicate a clear sustainability plan to the market to ensure battery recycling is done in a consistent, cost-effective, and environmentally-conscious manner.

Additionally, companies will have to develop a formal plan for transitioning legacy ICE suppliers to new critical parts for EVs. The procurement and supply chain teams will have to shift to a supply chain dynamic in the early phases of producing and shipping new technologies. Procurement and supply chain teams will need to improve their command of vehicle module-based just-in-time (JIT) execution, hazardous material management, and global and local supplier management practices.

Organization

Disruptors and giants have some concerns unique to their own operations, but there are some concerns common to both.

Disruptors should:

• Build a procurement organization looking for talent within and outside of legacy ICE OEMs.
• Prioritize which functions to build, thinking carefully about which practices in the legacy automotive industry are beneficial in the EV industry.

Giants should:

• Determine how to modify their existing supply chain organization to support both EV and ICE vehicle production.

Both groups should:

• Determine which unique skill sets are valued in the EV supply chain.

Technology

• Technology should play a central role in enabling new EV supply chains—especially for disruptors.

Disruptors should:

• Explore how to apply process automation to back-office functions.
• Create a comprehensive vision of their procurement and supply chain technology stack.

Giants, disruptors—and suppliers—should:

• Consider how blockchain can improve supplier tier visibility. Working closely with Tier 1-X suppliers, giants and disruptors can create visibility and transparency of supplier quality, cost and delivery.

Zooming ahead

The EV industry’s eye-popping growth projections highlight the need for companies with aspirations to be major players in the EV market to pick up the pace in building a supply chain that can help them achieve their goals. Giants will need to start making decisions around the transition from ICE to EV, particularly when it comes to manufacturing capabilities. Disruptors need to put all the supply chain capabilities in place to create order from the chaos—working from a clean sheet to define the mix of traditional and innovative practices, and internal and third-party resources, they need to go from website hype to scalable production. And both legacy suppliers and newcomers must figure out their role in the rapidly expanding EV market. The challenges are similar—and different—for giants and disrupters. However, the companies that address these challenges quickly position themselves for long-term success. That’s the real battleground for EV dominance.