Automakers Copy Tesla’s Sourcing Strategy to Run EVs

  • Auto companies need EV battery supply more than ever, but costs are rising.
  • Prices and pressure to use local materials are pushing automakers to invest in in-house battery supply.
  • This move replicates what Tesla has been doing for years.

As electric car battery costs soar, auto companies are doing everything they can to make their EV offerings more affordable for the masses in the coming years.

For that to happen, they may have to forget much of what they’ve learned about supply chains over the course of a century and replace it with a few pages from Tesla’s playbook.

Automakers are tackling today’s EV woes by exploring different battery types to reduce their reliance on demanding materials found in traditional lithium-ion setups. They’re also accelerating battery recycling efforts and working to get lithium, nickel, cobalt and more back into the supply chain.

These solutions come with challenges in terms of timing and expense, at least in the near term. This means that car companies are looking for an alternative and racing to secure the battery supply in the US.

This means investing in battery material sourcing, battery manufacturing and more to reduce the global supply disruptions the industry is seeing due to the pandemic.

“Almost all big companies are investing in it, for this very reason, to be more vertically integrated and have more control over their supply chains,” said Peter Maithel, chief analyst for the auto industry for Infor.

Volkswagen is establishing a battery cell factory at the Salzgitter plant for the large-scale production of which the Group is planning its own battery cells.

Volkswagen is establishing a battery cell factory at the Salzgitter plant for the large-scale production of which the Group is planning its own battery cells.

Julian Stratenschulte/image alliance via Getty Images

What’s your hurry?

In the past, car companies have expanded their supply chains around the world, relying on multiple suppliers for every component of a car. Some of the key pieces may come from the USA, while others may come from Europe or Asia.

Historically, the breadth of these supply chains has reduced potential bottlenecks. But the pandemic – and other disruptions like natural disasters – sheds light on how vulnerable auto companies can be, too. If even the slightest disruption occurs in an auto parts factory around the world, it can shut a production line down for days or weeks.

The birth of EVs and the nuances of sourcing these cars put these concerns and more at the top of the automaker’s to-do lists. In particular, the US has relied on foreign sources for battery supply, components, and processing. Meanwhile, China has had an advantageous start to sitting down on the raw materials needed to power EVs and controlling the world’s production of battery cells, packs and more.

But whether it’s an unforeseen disruption like COVID-19 or a geopolitical issue, this has left companies extremely vulnerable, prompting them to move production closer to their home. Already this summer, there is general pressure to move away from this worldwide supply chain model, driven by climate law.

“We’ve just seen an unprecedented amount of announcements, co-development deals, early supply contracts with automakers’ battery materials suppliers and battery manufacturers,” said Matt Sculnick, executive director of Nomura GreenTech’s advanced transportation team. I don’t think we really saw it.”

Rivian production

Rivian manufactures its EVs in Illinois.


Good news for EV adopters – finally

It’s called vertical integration, and it’s something Tesla has known for a long time.

“Tesla has always been the groundbreaking person here by going straight to source, going straight to the mines, and negotiating supply contracts with the mines,” said Tony Lynch, general manager of Alvarez & Marsal.

As GM, Ford, and others struggled to enter US mining deals and production, it gave Tesla an advantage in terms of visibility into production.

It’s complex and time-consuming, but ultimately it may be the best way for auto companies to come close to reducing the cost of new EVs. According to Kelley Blue Book, it settled in November for about $65,041—a new gas-powered car averaged $48,681 during the same period.

More supply overall, but especially in the US, coupled with more EV volume will push that down.

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