The rise of electric vehicles (EVs) is reshaping the automotive supply chain. Traditional components like engines and transmissions are getting replaced by batteries and electric drive-trains, impacting suppliers and manufacturers. Supply chains are adapting to new materials and technologies, influencing everything from raw material extraction to final assembly. The demand for lithium, cobalt, and nickel for batteries has increased, prompting shifts in resource exploration and extraction. Additionally, the growth of the EV market requires investments in charging infrastructure and influencing the supply chain in the energy and utilities sectors. Overall, the transition to electric vehicles is transforming the automotive industry in India. The transition to electric mobility could translate into a market opportunity worth USD 206 billion by FY30.1. Understanding these transformations is crucial for stakeholders, like car manufacturers, suppliers, consumers, etc. The shift to electric vehicles is driven by several interconnected forces, including concerns about fossil fuels, government regulations and incentives, technological advances, and long-term plans from auto manufacturers. Each of these forces acts on others in a variety of ways, like better battery technology resulting in more consumer interest, and government regulations leading automakers to invest more in EVs.
REASONS FOR SHIFT TO EV FROM REGULAR AUTOMOBILES
1. Better battery technology: Earlier the batteries for electric vehicles were made from nickel and they had their limitations, like lower energy density and a reduced life span. As lithium-made batteries entered the market, they proved to be a game-changer, offering higher energy storage, lower weight, and a longer life cycle. Tesla has been one of the biggest forces in driving battery technology forward in the US. Emerging markets like China have exerted massive force on the field of electric vehicles, with China alone accounting for 44 percent of all the EVs in the world. It also leads the world in terms of its battery supply chain, spurring further competition in the sector from the US and the EU.
2. Government Regulation: Countries all over the world have come up with ways to support the rise of EV’S in the automobile market especially as regulators around the world are defining more stringent greenhouse emissions targets. The EU presented its “Fit for 55” program which seeks to align climate, energy, land use, transport, and taxation policies to reduce net greenhouse gas emissions by at least 55% by 2030. The US, under the Biden administration, introduced a 50 percent electric vehicle (EV) target for 2030. Beyond such mandates, most governments are also offering EV subsidies. Cities are working to reduce private vehicle use and congestion by offering greater support for alternative mobility modes like bicycles. Paris announced it will invest more than $300 million to update its bicycle network and convert 50 kilometers of car lanes into bicycle lanes. In fact, over 150 cities in Europe have already created access regulations for low emissions and pollution emergencies.
3. ENVIRONMENTAL CONCERNS: The availability of fossil fuels is limited, and their use is destroying our planet. Toxic emissions from petrol and diesel vehicles lead to long-term, adverse effects on public health. The impact of emissions from electric vehicles is much lower than petrol or diesel vehicles. From an efficiency perspective, electric vehicles can convert around 60% of the electrical energy stored in the battery to power the wheels, but petrol or diesel cars can only convert 17%-21% of the energy stored in the fuel tanks to the wheels. Fully electric vehicles have zero tailpipe emissions, but even when electricity production required to charge EV’s is taken into account, petrol or diesel vehicles emit almost 3 times more carbon dioxide than the average EV. To reduce the negative environmental impact of charging electric vehicles, India aims to achieve about 40 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by the year 2030.
UNDERSTANDING THE TRADITIONAL AUTOMOBILE CHAIN
The automobile supply chain is a critical and intricate network involving various entities responsible for the design, production, distribution, and servicing of vehicles. This supply chain encompasses a series of stages, each contributing to the creation and delivery of automobiles to end consumers. Here is an overview of the key components of the automobile supply chain:
RAW MATERIAL SUPPLIER | The supply chain begins with companies that extract and provide raw materials such as steel, aluminum, plastics, rubber, glass, and other materials needed for manufacturing automotive components. |
COMPONENTS MANUFACTURER | These companies produce specific components and subsystems, such as engines, transmissions, electronic systems, braking systems, and more. These components are then supplied to original equipment manufacturers (OEMs) or Tier 1 suppliers. |
TIER 1 SUPPLIERS | Tier 1 suppliers are major suppliers that provide complex systems or modules to the OEMs. They may assemble various components into larger modules before delivering them to the OEMs. |
ORIGINAL EQUIPMENT MANUFACTURER | OEMs are the companies responsible for designing and assembling complete vehicles. They source various components from tier 1 suppliers and oversee the overall production process. |
ASSEMBLY PARTS | OEMs have assembly plants where they put together the various components and systems to manufacture complete vehicles. |
DISTRIBUTION AND LOGISTICS | Once vehicles are assembled, they are distributed to dealerships through a network of logistics providers. Distribution involves transportation, warehousing, and inventory management. |
DEALERSHIP | Dealerships sell the finished vehicles to consumers. They also provide maintenance and repair services. |
AFTER SALE SERVICES | This involves providing repairs and maintenance services to the consumer after the sale of the vehicle has been done |
KEY TRANSFORMATIONS IN THE AUTOMOBILE SUPPLY CHAIN
Battery Technology and Raw Materials: The development and production of advanced batteries are at the core of EVs. which represents about 40% of the total value of EV’s .This has led to an increased focus on securing a stable supply of key raw materials like lithium, cobalt, and nickel. Components only used in ICE (INTERNAL COMBUSTION ENGINE) vehicles such as conventional transmissions, engines, and fuel injection systems would significantly decline to around 11 percent by 2030—about half the size of 2019 levels. Such a drastic shift will force traditional component players to adapt quickly to offset decreasing revenue streams. Companies must therefore compete globally to secure the required volumes of raw materials and do it sustainably in compliance with environmental, social, and governance (ESG) norms.
Manufacturing Adaptations: Traditional automakers are reconfiguring their manufacturing processes to accommodate the production of EV components. This involves significant capital investment in new assembly lines, robotics, employee training, and a shift towards lightweight materials to enhance battery efficiency and the integration of innovative technologies. The shift to EVs necessitates changes in the skill set of the manufacturing workforce and battery technology.
Supply Chain Integration: In the electric vehicle era, supply chain integration is crucial. It calls for greater collaboration among stakeholders. Building such supply chains and expanding manufacturing capacities is a complex exercise that requires in-depth planning and investments to meet future demand. Mobilizing investment flows to develop a robust supply chain would require understanding the current landscape, including the value addition of each component and its sourcing; current players; policy levers; and the existing barriers to the development of the ecosystem.
Logistics and Distribution: The logistics and distribution aspect of the supply chain is also undergoing a significant transformation. The shift to EVs necessitates changes in transportation methods, as these vehicles need specialized handling and storage due to their battery components. Transportation methods and infrastructure need to adapt to handle these larger and heavier components efficiently. Companies are exploring innovative solutions, including optimized shipping routes and alternative transportation modes, to streamline logistics operations.
Sustainability Integration: Sustainability considerations are becoming integral to the automotive supply chain. Manufacturers are implementing eco-friendly practices in production, aiming for carbon neutrality, and optimizing energy consumption. Additionally, there is a growing emphasis on end-of-life recycling for EV batteries, addressing concerns about environmental impact and resource conservation.
Shift in Talent: The rise of EVs necessitates a shift in the skill sets required across the automotive industry. There's an increasing demand for engineers, technicians, and workers with expertise in electric vehicle systems, battery technology, and software development. Educational institutions and training programs are adapting to meet this evolving demand for specialized skills.
HOW TESLA REVOLUTIONISED THE AUTO INDUSTRY?
Founded in 2003 and headquartered in California, Tesla ranked as the most valuable automotive brand worldwide as of June 2023 and within the fourteenth most valuable brands across all industries in 2022. That same year, Tesla led the battery-electric vehicle market in sales. Most of its models are electric passenger cars, particularly sedans and crossover vehicles. Globally, Tesla's vehicle deliveries reached a record of 1.31 million units in 2022 and have been steadily growing year-over-year despite the global automotive semiconductor shortage.
It was not until 2008 when Elon Musk took over as CEO that Tesla began to shift its focus to a more consumer-centric approach to product development. Musk’s vision was to make electric cars a mainstream option, rather than just a niche product. To achieve this goal, Tesla began to prioritize user-centric design, creating products that were not just functional but also desirable. Tesla’s success story is a prime example of how adopting agile and design thinking methodologies in product development can create a rapid and iterative development process. Tesla started its journey with the Model S, which was first released in 2012. The car was designed with the user in mind, incorporating features like a large touch-screen interface and a sleek, modern exterior that set it apart from traditional gasoline-powered vehicles.
Elon Musk’s vision of an affordable and efficient electric vehicle that was both luxurious and sustainable, transformed the automotive industry, putting Tesla at the forefront of electric vehicle innovation. Data analysis was another key factor in Tesla’s success. The company utilizes data analysis to understand its customers’ needs and preferences, optimize its production processes, and improve its product offerings. Tesla collects vast amounts of data from its cars, such as driving patterns, charging behaviour, and battery performance, to inform its decision-making processes. This data is used to identify and fix issues and improve overall performance, ensuring that Tesla’s products meet the highest standards of quality and customer satisfaction.
In terms of product strategy, Tesla focused on creating a premium product with the Model S that would appeal to early adopters and pave the way for future mass-market electric cars. The company also implemented a roadmap that included the development of a range of electric vehicles, as well as the creation of a network of charging stations to make it easier for drivers to use their electric cars on long trips. Overall, Tesla’s product strategy, roadmap, and execution have set a high bar for the industry, revolutionizing the way we think about sustainable transportation. By prioritizing user-centric design and adopting cutting-edge methodologies like Agile and Design Thinking, Tesla has not only created successful products but has also disrupted an entire industry, inspiring others to follow in their footsteps.
CHALLENGES FOR EV PRODUCERS WORLDWIDE
In 2023, new electric vehicles (EV) as a share of total registrations are projected to reach a record 20% (only including battery electric and plug-in hybrid electric vehicles) worldwide, up from 16% a year earlier. Yet, as EV take-up grows, the industry is anticipated to face several growing pains: the lack of affordable EVs, lagging EV charging infrastructure, and insufficient grid capacity. Amid stricter laws and carbon emission standards set by governments, overcoming these key challenges will be vital to continue decarburizing the transport sector.
Most consumers shy away from EVs due to their high cost
Cost remains the leading prohibitive factor in why consumers turn down EVs. According to the car comparison site, cars.com, a 2023 Hyundai Kona EV was, for example, 51% more expensive than the corresponding petrol model. This reduces the appeal of EVs, especially among more price-sensitive consumers in emerging and developing countries, where incomes tend to be significantly lower than in advanced economies. However, in recent years, automakers have sought to improve the supply of more affordable EVs to cater for the growing mass market worldwide. According to cars.com, several EV models, including the 2023 Nissan Leaf S and Chevrolet Bolt EV, were priced under USD 30,000 in the US (as of July 2023). It follows increasing research and development into lowering the cost of EV batteries, which typically account for 30-40% of the total price of an EV. Byd, a Chinese battery and automotive firm, and CATL, a leading manufacturer of batteries, are experimenting with sodium-ion (albeit in a hybrid system with lithium-ion) batteries, which are estimated to be 20-40% cheaper than conventional lithium-ion batteries.
Lack of public EV charging stations incites “range anxiety”
According to Euro monitor International’s Voice of the Consumer: Mobility Survey 2023, poor charging infrastructure was the second most common reason why people refuse to buy an EV. This is a key factor instigating “range anxiety” – the fear of losing power in an EV before locating a charging station.
In several countries, such as Norway, Sweden and the UK, EV take-up has been strong. Nevertheless, this has not been matched with a rapid rollout of public EV charging stations. According to the EU’s 2014 Alternative Fuel Infrastructure Directive (AFID), the policy recommends for EU member states to follow a ratio of 10 EVs per charging station. However, many countries fell short of this recommendation in 2022, including Norway (31 EVs per charger), Germany (23), the UK (19) and Denmark (18).
Increasing the number of public EV charging stations will be paramount, as it directly caters to the growing urban population living in apartments where home charging solutions are more difficult to install. The challenge of charging stations stems from the high costs and the small market share of EVs, which reduces the appeal of private investment in charging infrastructure. However, several companies are making strategic ventures, banking on the industry’s future potential. This includes the Italian energy company, Enel, which through its e-mobility division, Enel X Way, is planning to deploy two million electric vehicle chargers in the US by 2030.
Finite critical minerals and rare earth metals
EVs use about six times more mineral inputs than ICE vehicles. The IEA’s forecast of 70 million EVs on the road by 2040 will be accompanied by a 30-fold increase in demand for minerals. There is no shortage of these resources, but rather there is a concern as to whether they will be extracted sustainably, in line with social responsibility governance, and in time to meet demand. It is anticipated that there will be a shortage of nickel and challenges in scaling up lithium production. This supply shortage may also cause manufacturers to use lower-quality mineral inputs, adversely affecting battery performance.
CONCLUSION
Despite challenges in sight for a complete shift to EVs, there are no signs of the industry slowing down, with technological advancements and regulatory changes continuously reshaping it. As manufacturers become more adept at producing electric vehicles efficiently and at a lower cost of production, the landscape of automotive supply chains will undergo further transformation. Improved battery technology may lead to longer range and faster charging rates, making electric vehicles more appealing to consumers. We can expect a greater emphasis on sustainable manufacturing practices driven by regulatory demands and consumer expectations. As digital technology enables more customization, we expect a trend toward more personalized vehicles tailored to individual preferences and needs. The shift towards electric vehicles is leading to the creation of new job roles within the automotive industry. Positions related to battery technology, electric powertrain engineering, and digital technology are becoming increasingly important. Conversely, jobs related to traditional internal combustion engine technologies may become less prevalent. Training and upskilling current employees to fill these new roles will be a crucial challenge for the industry. The EV sector presents a high prospect of shaping the transportation sector’s future while helping us prevent global warming caused by traditional automotive dependence on depleting fossil fuels.
REFERENCES
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