The auto industry could soon face a shortage of battery supplies for electric vehicles—a challenge that he says could surpass the current computer-chip shortage, reports The Wall Street Journal (April 18, 2022). Car companies are trying to lock up limited supplies of raw materials that are key to battery making, and many are constructing their own battery plants to put more battery-powered models in showrooms.
Rivian’s CEO states: “All the world’s cell production combined represents well under 10% of what we will need in 10 years. Meaning, 90% to 95% of the supply chain does not exist.” His comments are the latest alarm bell to go off across both the auto and battery sectors as the fast-rising demand for EV parts and a shortfall of critical materials and production could result in an acute supply crunch. (Rivian is sharply curtailing factory output this year, cutting its forecast in half to 25,000 vehicles because of constraints on getting parts and materials).
Building enough batteries will be among the biggest hurdles in trying to boost EV sales from a few million today to tens of millions within the decade. The shortages will occur everywhere from the mining of raw materials, to processing them, to building the battery cells themselves. Already, demand for lithium-ion batteries, which are the core power source for EVs, has surged to 400 gigawatt hours in 2021—up from 59 gigawatt hours in 2015—and it is expected to jump another 50% in 2022.
The semiconductor shortage that is disrupting the auto industry was a relatively small supply-demand imbalance that then led to aggressive overbuying and stockpiling, putting the car sector in the difficult position it is in now. With batteries, the problem is expected to be much, much worse.
The race to secure raw materials is growing increasingly competitive, in part because they are becoming more costly for battery makers. Raw materials account for 80% of the cost of a battery, up from 40% in 2015. Materials for the battery cathode, such as lithium, cobalt and nickel, have gained about 150% in the past year. Some companies, such as GM, are joining with mining firms to secure access to critical ingredients such as cobalt and lithium. Others are bringing more of their battery-cell production in-house, aiming to have more control over this core component for EVs.
Classroom discussion questions:
- What can Rivian’s operations managers do to secure more battery cells?
- What are the major OM issues facing EV makers?