New Research: Supply Chain Risks Lurking Behind the Electric Vehicle Boom

Michael Flippo/Adobe Stock

Recently I learned that I live not that far from an electric vehicle charging station. Costs aside, I too could hypothetically procure such a car and join the other 2 million drivers of electric vehicles out there, zooming around while damaging the environment less.

Considering the exponential growth that electric vehicle sales have seen in the past five years, that 2 million figure is most definitely outdated (and increasing as you read this). According to the International Energy Agency (IEA), there were 2 million electric vehicles on the road globally in 2016, a 60% increase from the previous year.

Fourteen countries (including the U.S., believe it or not) have joined the Electric Vehicle Initiative, aiming for battery-powered cars, trucks and buses to reach 30% market share by 2030. According to IEA calculations, we would need 600 million electric vehicles globally by 2040 in order to reach the global warming target set by the Paris Agreement.

A new report from risk analysis firm Verisk Maplecroft, however, shows that the electric vehicle supply chain is far from devoid of social and even environmental risks. It largely comes down to the raw materials needed for electric vehicles, such as aluminum, cobalt, mica and rubber.

As great as it would feel to drive around without polluting the environment, many of the main raw materials used in the lithium-ion batteries that power electric vehicles are sourced from high-risk places, such as the Democratic Republic of Congo (DRC). The DRC is the world’s leading producer of cobalt, a key metal used for lithium-ion batteries. Although cobalt is not explicitly called a conflict mineral under the Dodd-Frank Act, it is linked to child labor and widely referred to as a conflict mineral derivative.

Further complicating the situation is the fact that these batteries have different risk profiles depending on the component parts of the cathodes, as well as on the countries from which the raw materials are sourced. LCO batteries, for example, are 100% cobalt, which Verisk Maplecroft analysts categorize as “high risk” due to the overall commodity risk of the top cobalt-producing countries.

In contrast, LMO batteries are 100% manganese, a “medium risk” metal. NCA batteries are 80% nickel (medium risk), 15% cobalt (high risk) and 5% aluminum (medium risk). These are all various lithium-ion batteries, named after the metal(s) they contain.

As often is the case for risky supply chains, traceability is a big challenge. In Verisk Maplecroft’s graphic below, you can see an example of how risk could ebb and flow across the cobalt and lithium supply chains.

Furthermore, the risk associated with electric vehicle supply chains is likely to increase as demand grows and companies have to find new sources of these raw materials. Aluminum production, for example, is shifting from Australia to Guinea, where labor standards are lower and corruption is more rampant. Thus, the graphic below is a particularly interesting one, as it shows how sourcing is shifting for bauxite, cobalt, lithium and nickel.

No one wants a repeat of — or anything remotely resembling — Volkswagen’s recent diesel emissions scandal. As the report authors put it, “in order for [electric vehicle] producers to maintain their clean, green image, they will need to ensure that every individual component required for the manufacture of their vehicles is ethically sourced and as untarnished as a new vehicle rolling off the production line.”

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