The rise of the Electric Vehicle (EV), for domestic passenger, light commercial and potential some heavy commercial use, is destined to have a significant impact on the commodities world. The traditional world order of hydrocarbon extraction and usage within the transport sector will be turned upside-down as demand falls away, with demand for metals skyrocketing in its stead. This threatens to dramatically change the supply chain requirements across the commodities sector, with significant investments in the metals area required to enable extraction and shipping of significantly greater tonnages.
EVs fall into a number of types, from hybrids and pure battery vehicles to fuel cells. However they all have battery tech as a common core feature. Global battery production to support EVs has more than doubled since 2015 to 125Gwh, with some predictions expecting a further doubling between now and 2020. This huge increase in capacity is being met by an equally large increase in the output of the minerals and metals required to support battery production – lithium and cobalt are critical components, along with nickel, rare earths, and copper. Visualcapitalist.com recently indicated the implications if the world turned 100% to electric transport, showing a 2,898% increase in lithium demand, a 1,928 increase in cobalt demand, and a 655% increase in rare earths demand to name but three.
The success and optimisation of the supply chain for these core elements will quickly become critical to achieving the stated EV outputs and subsequent carbon emissions. Is the global supply chain ready?
Currently supply chains are focused on a small number of core production locations – notably China for rare earth elements, Australia and Chile for lithium, and Indonesia and the Philippines for Nickel. Significant investment is going to be needed across both production facilities, as well as the intermediate supply chain assets and functions, in order to keep pace with demand. Automated vehicles, optimisation of production facilities, and innovative commodity traceability solutions are all going to be needed – alongside a range of other improvements. This will need to include substantially improved supply chain planning functions, able to manage production and demand utilising improved access to data analytics, as well as investment in physical logistics assets to improve shipping of bulk materials.
Supply chains in receiving locations will also need to see substantial expansion – primarily in heavy cargo transport via the rail network from import and production facilities to manufacturing plants. Where volumetric demand is lower, or rail is not an option, investment in local road networks will also be required. The concentration of battery production for EVs into megafactories, of which 26 are in production or expanding capacity accounting for up to 70% of total production capacity by some estimates, will exacerbate the need for improved local supply chains and for investment in bulk commodity logistics to service large-scale end users.
The extractive and supply chain industries supporting EV growth are slowly gearing up to increasing consumer demand. However, the predicted rapid escalation of EV penetration in the domestic and light vehicle markets is likely to result in increasingly rushed investments and programmes to meet demand. Supply chain operators and commodity suppliers who are operating ahead of the curve will be best placed to benefit through improved extractive and supply chain capacity and lower operating costs.