OM in the News: A New European Supply Chain–Electric Batteries

The battle between Europe and China over control of the technology that powers electric cars has just begun, reports The Wall Street Journal (Sept. 15, 2019).

“The Chinese can build an entire factory in 10 weeks,” said the CEO of Sweden’s Northvolt AB, which aims to become the prime purveyor of batteries to Europe’s makers of electric and hybrid cars. Northvolt is launching into a market that has been locked up for years by South Korea giants  LG, Samsung. and SK Innovation. His hope is that Europe can retain its expertise as car production shifts from mechanical engineering—where the region has excelled—to batteries.

VW alone expects to build at least 2 million electric cars a year by 2025. (VW just agreed to invest $994 million Northvolt.) Non-European players, such as China’s CATL are muscling in. CATL plans to construct a $2 billion battery plant in Germany. LG Chem is building a second plant in Poland, while SK Innovation is building its second Hungarian plant.

But European auto makers and politicians are eager to develop a regional supply chain mirroring the one that exists for conventional automobiles. This is something of a U-turn for car companies that long considered batteries a commodity not worth producing in Europe. Daimler ended battery cell production in 2015, saying it was too costly. But when these manufacturers recently began ramping up their EV plans, they struggled to secure sufficient raw materials and battery capacity, and realized they had to invest in battery production. Still, the cost of investing in battery development and production from the ground up is proving too steep for even large suppliers, such as Bosch.

The shift to EVs could have a huge impact on an industry that employs 13.8 million workers in Europe. Germany estimates it could destroy 13% of the country’s automotive jobs.

Classroom discussion questions:
1. How will EVs impact current auto supply chains?

2. Are U.S. auto makers facing the same challenge?