electric vehicles – The OM Blog by Heizer, Render, & Munson

OM in the News: Electric Cars and the Climate

An EV charging at a shopping center in California

Replacing all gasoline-powered cars with electric vehicles won’t be enough to prevent the world from overheating, says a new U. of California report. “The report offers a look at the environmental and economic sacrifices needed to meet net-zero climate goals,” writes The Wall Street Journal (Feb. 13, 2023).

The study notes three problems:

Problem No. 1: Electric-vehicle batteries require loads of minerals such as lithium, cobalt and nickel, which must be extracted from the ground like fossil fuels. If today’s demand for EVs is projected to 2050, the lithium requirements of the US EV market alone would require triple the amount of lithium currently produced for the entire global market. Unlike fossil fuels, these minerals are mostly found in undeveloped areas that have abundant natural fauna and are often inhabited by indigenous people. Mining can be done safely, but in poor countries it often isn’t.

Problem No. 2: Mining requires huge amounts of energy and water, and the process of refining minerals requires even more. Mining accounts for 4% to 7% of global greenhouse-gas emissions. Auto makers have made a priority of manufacturing electric pick-up trucks and SUVs because drivers like them, but they require much bigger batteries and more minerals. More mining to make more EVs will increase CO2 emissions. It will also destroy tropical forests and deserts that currently suck CO2 out of the atmosphere, the report says.

Problem No. 3: Producing EVs is an energy- and emissions-intensive process with high levels of embodied carbon. Electrification of the US transportation system will massively increase the demand for electricity while the transition to a decarbonized electricity grid is still underway.

The report concludes that the auto sector’s “current dominant strategy,” which involves replacing gasoline-powered vehicles with EVs without decreasing car ownership and use, “is likely incompatible” with climate activists’ goal to keep the planet from warming by more than 1.5 degrees Celsius compared with preindustrial times. Instead, the report recommends government policies that promote walking, cycling and mass transit.

Classroom discussion questions:

Comment on the report’s recommendations.
What can overcome the three problems cited?

OM in the News: EV Plans Hinge on Made-in-America Batteries

Companies and the U.S. government are shelling out billions of dollars to establish a supply chain for batteries in North America, a manufacturing effort that is critical to the auto industry’s long-range plans to put more electric vehicles on the road.

Batteries are the most expensive component in an electric vehicle, accounting for about one-third of its cost, reports The Wall Street Journal (Feb. 7, 2023).

Lithium, produced at this site in Nevada, is among the minerals that are crucial battery components.

American electric-car makers traditionally haven’t assembled batteries themselves. They rely on a far-flung supply chain. The raw materials are mined primarily in countries such as Australia, China, Congo and Indonesia. Chemical processing, battery components and assembly are mostly done by Chinese companies.

A recently passed law provides incentives for North American-built batteries and penalizes car companies that source batteries abroad, is spurring a wave of new projects in the U.S.—from cell-making factories to new ventures to mine the raw materials.

The U.S. also announced awards totaling $2.8 billion to about 20 companies in more than 10 states to help expand domestic manufacturing of batteries for electric vehicles and the electrical grid. The money will go to projects that process lithium, graphite and other battery materials, manufacture components and demonstrate new approaches, such as producing components from recycled materials. The projects will specialize in building up the supply of particular materials and components, with a goal of lowering U.S. battery manufacturers’ reliance on foreign supply chains.

Assembling the battery cells that are embedded in vehicles is only one part of a process that typically involves multiple companies and can be geographically dispersed across continents. In the first step, mining companies extract raw materials such as lithium, nickel and other minerals, which have risen in value as demand for green energy grows. Then, other companies—often in other countries—process the minerals. Next, other specialized companies build components such as anodes, cathodes, separators and electrolytes. A fourth step involves the production of battery cells that house the components, including electronics and sensors that help manage a battery. These specialized companies that make components such as anodes and cathodes are crucial to the industry’s growth in the U.S.

Classroom discussion questions:

Why is the transition to U.S. production of batteries slow and expensive?
Why does the E.U. oppose “made in the U.S. ” battery limitations?

OM in the News: Battery Supply Chains

For the first time in more than a decade, the cost of an electric car battery is set to rise this year, reports The Financial Times (Oct. 10, 2022). Soaring prices for battery raw materials — such as lithium, cobalt and nickel — have led to the reversal of a long-held trend towards cheaper cells, which had seen costs come down from $1,220 per kilowatt-hour in 2010 to $132 per KWH last year. And a return to more expensive batteries, alongside a supply chain squeeze, calls into question how quickly electric vehicles can become affordable mass-market products — at a time when transport still accounts for a quarter of the carbon dioxide emissions that are a driver of global warming.

Some carmakers are going directly to lithium mining companies to source raw materials

This means that carmakers will experience prolonged production disruptions, akin to those caused by semiconductor shortages over the past two years. So, faced with constraints on their ability to acquire raw materials, some companies are planning to take over the buying of vital inputs themselves, rather than leaving it to a vast base of suppliers.

Tesla was the first carmaker to venture onto this path in 2020, saying the company would intervene directly, where necessary, to supplement the supply of battery materials. The EV maker has applied for tax breaks to build a potential lithium refinery in Texas or Louisiana. Such a move is seen as necessary to achieve Tesla’s ambition of 20 million electric car sales by 2030.

It comes with great risk, though. Lithium refining — complex chemical processing — is a far cry from the carmaker’s core expertise of designing vehicles (see Chapter 2’s discussion of core competence), and relies on the company being able to secure a type of lithium ore known as “spodumene”. (Prices of lithium hydroxide, the refined product, have skyrocketed to more than eight times the level of the start of 2021 at almost $70,000 per ton, close to record highs.) Ford, GM, and Stellantis are following Tesla’s path in investing in lithium mines.

Battery costs are forecast to be $138 per kilowatt-hour in 2024 — the same level as last year. A cost of $100 per KWH is viewed as the level that will make EVs affordable. Industry advancement rests on batteries getting more powerful and cheaper and cheaper every year.

Classroom discussion questions:

Should automakers go out and buy lithium mines? Why or why not?
Why is this an important OM issue?

OM in the News: Why Tennessee Hits the Electric Vehicle Sweet Spot

Tennessee is emerging as a leader in a national scramble to develop electric-vehicle and battery production, as states compete to woo multibillion-dollar investments from auto companies pivoting away from the combustion engine. Ford and South Korean battery maker SK Innovation recently said they plan to develop a large complex to make EVs and batteries there. That follows similar investments made by GM and VW to add EV production at their Tennessee assembly plants.

Ford’s real-estate scouts began their search early this year by looking at 85 potential locations across more than a dozen states. Ford’s checklist included a large empty property, so Ford could move quickly without having to clean up or retrofit an existing facility; cheap and reliable energy derived from renewable sources; access to rail and interstates; and reasonably close proximity to Ford’s other assembly plants– all factors we discuss in Chapter 8 of your text.

Tennessee has stepped out in front in large part because of yearslong efforts by the state and the Tennessee Valley Authority, which provides power to the region, writes The Wall Street Journal (Oct. 16-17, 2021). The state promoted its extensive workforce-training programs, a right-to-work law, and proposed $500 million in incentives. The TVA offered inexpensive, reliable energy and at least $100 million in power upgrades and other incentives.

Energy costs are a big consideration for the battery factories because of the immense amount of electricity they use: 5 times more than in a typical auto assembly plant. TVA charges some of the lowest industrial energy rates in the country.

Tennessee made its mark on the auto world in 1983, when Nissan opened its first U.S. plant in Smyrna, Tenn. This was followed by large manufacturing operations for GM and VW. Hundreds of suppliers followed. Today, many thousands of Tennesseans are employed in vehicle manufacturing.

Auto makers are spending more than $300 billion globally by mid-decade to transition their lineups, including on massive battery factories and on new and revamped assembly plants. VW is nearing completion of an $800 million expansion of its decade-old assembly plant in Chattanooga, where next spring it is scheduled to start production of its new ID.4 electric SUV. GM in the past year decided to double down on Tennessee as a base of EV production, spending $2 billion to overhaul its assembly plant in Spring Hill, for electrics, starting with a plug-in Cadillac SUV.

Classroom discussion questions:

What is a “right-to-work state” and why was it a factor here?
Discuss the incentives offered to auto makers. Are they reasonable?

OM in the News: The Exploding Tesla

The San Francisco home burns after 2 Tesla Model S sedans erupted in flames in the garage.

Automakers face numerous challenges as they race to get electric vehicles to consumers ahead of regulatory and company deadlines for shifting production away from gas-powered vehicles. They face skepticism about the availability of charging stations, concerns about vehicle range and apprehensions over cost. Fires have drawn attention because of the high-profile recalls and blazes that followed product rollouts, writes The Washington Post (Aug. 4, 2021), further complicating the automakers’ calculations.

In San Francisco, a Tesla Model S (the expensive one) blew up in the owner’s garage, set fire to their second Tesla, and destroyed the million dollar home. “Gasoline driven cars don’t catch fire in the garage when they’re sitting there. And that’s the difference,” said the owner who has since witched brands. “I don’t worry about my Audi catching fire downstairs when it’s not running.”

The fire is one in a string of recent examples showing what can happen when electric cars are left parked in garages to charge overnight. The issue is causing mounting concern as a number of EV makers have warned owners not to leave the cars charging unattended in certain circumstances, or sitting fully charged in garages. “Battery fires can take up to 24 hours to extinguish,” Tesla’s website says. “Consider allowing the battery to burn while protecting exposures.”

Automakers including GM, Audi and Hyundai have recalled EVs over fire risks in recent years and have warned of the associated dangers. Chevrolet advised owners not to charge their vehicles overnight or keep their fully charged vehicles in garages. It recalled more than 60,000 of its Bolt EVs over concerns about the cars spontaneously combusting while parked with full batteries or charging, after reports of 5 fires. Hyundai advised owners to lower the maximum state of charge in their vehicles to 80%, and park outside until the state of charge is lowered. Battery-powered vehicles have not been shown to catch fire at rates higher than gasoline cars, but when fires do erupt, they burn longer and hotter, propelled by lithium-ion batteries that supercharge the blazes.

Classroom discussion questions:

Will incidents like this impact the transition to EVs?
How is this an issue for operations managers?

OM in the News: Casting Aside Gas Engines

VW ID.3 electric cars assembled in Germany,

For more than a century, auto makers continually honed their gas and diesel engines, sparring over which had greater power, better fuel efficiency, more durability or delivered a smoother ride. Now, they are sending the combustion engine to the scrap heap and are pouring billions of dollars into electric motors and battery factories. Instead of powertrain specialists, they are hiring thousands of software engineers and battery experts.

The transition is upending the automotive workplace, writes The Wall Street Journal (July 24-25, 2021), from the engineering ranks and supply chain to the factory floor. Parts makers that for generations have made the same pieces for engines and transmissions are jockeying to supply electrical components.

Unions in the U.S. and Europe fear a steep loss of jobs tied to making engines and transmissions. The UAW has warned that the move to EVs, which require fewer parts and 30% less manpower to produce, could jeopardize tens of thousands of U.S. jobs. A Morgan Stanley report estimates full transition to EVs could lead to 3 million lost automotive jobs globally. EVs are simpler mechanically than gas-powered ones. Their drivetrains employ fewer than 20 moving parts, compared with hundreds for the gas-powered version.

“It’s been a fun ride,” said an engineer with 40 years in the industry. “But I think we’re coming into the homestretch for the conventional engine.” Auto executives have concluded that they can’t meet tougher tailpipe-emissions rules globally by continuing to improve gas or diesel engines. And they don’t intend to develop any new gas engines. “I don’t know where to spend money on them anymore,” said GM’s President. Developing a new gas engine can cost $1 billion and involves 100’s of suppliers. Over the past several decades, auto makers rolled out 20-70 new engines annually. That number will fall below 10 this year, and then essentially go to zero.

The industry’s rapid shift in focus has left suppliers that have long made parts for gas engines hustling to reinvent themselves. “We don’t want to be left making the best buggy whips,” said one Michigan auto supplier.

Classroom discussion questions:

What strategy should auto parts makers take?
Will the transition to EVs be complete this decade? Why or why not?

OM in the News: Going Big on Electric Vehicles

An electric Chrysler Pacifica minivan under assembly in Windsor, Ontario,

Global auto-making giant Stellantis ( from the merger of Fiat Chrysler Peugot) plans to spend more than $35 billion through 2025 to release an array of new plug-in models to compete in the industry’s intensifying electric-vehicle race. Stellantis also plans to get more involved with battery development and sourcing, aiming to drive down costs on one of the most expensive components for an electric car, with the establishment of 5 battery factories in North America and Europe. It aims to offer electrified options under all 14 of its brands, which include Jeep, Ram, Peugeot and Citroën. Stellantis will offer two kinds of battery chemistries, a high-density option and a nickel cobalt-free alternative by 2024, as well as introduce solid-state battery technology by 2026.

Other major car companies have upped their bets on EVs and pivoting from their century-old model of selling gasoline-powered vehicles. GM just increased its planned spending on EVs to $35 billion through 2025. The increase reflects the addition of two more battery factories, on top of ones already planned for Ohio and Tennessee. Ford also has become more aggressive, unveiling an all-electric version of its bestselling vehicle, the F-150 truck. It plans to invest $30 billion in EVs through 2025. And VW is spending $40 billion through mid-decade on EVs. (That is $150 billion planned expenditures for just these four firms)!

Europe and the U.S are expected to tighten regulations limiting tailpipe emissions in the coming years, putting pressure on auto companies to lessen their reliance on gasoline-powered vehicles. Governments are also offering more incentives to get auto makers to invest in electrics. The U.S. has called for $174 billion in electric-vehicle-related spending, which includes fresh federal tax credits for purchasing plug-in cars and commercial trucks.

Meanwhile, other car companies are moving quickly to put out EVs and the marketplace is becoming more crowded, with startups such as Rivian and Lucid Motors moving closer to selling their first plug-in models. Tesla continues to expand globally and fortify its grip on the market with growing sales and new-model debuts.

Classroom discussion questions:

You are head of OM for a large auto manufacturer. Conduct a SWOT analysis (see Chapter 2) on the move to EVs.
How will the auto industry look a decade from now compared to today?

Teaching Tip: Explaining a Crossover Chart

The Wall Street Journal (March 23, 2021) tackles a question in many minds, namely, are EVs better for the environment than their gas-fueled counterparts? The researchers find that Teslas generate 65% more carbon dioxide emissions than the Toyotas (because of the metals needed for lithium-ion batteries) before they roll off the assembly lines. Then the tide starts to turn and we hit crossover at 20,600 miles driven. The RAV4 burns gas, refined from crude oil. The Tesla refills with electricity, which still burns coal but is getting cleaner each year with more renewables and natural gas. By 200,000 miles, the lifespan of a typical car, the emissions comparison is no longer close.

wsj article

How quickly the U.S. fleet of 280 million cars and pickups switches to EVs will have a huge impact on the country’s overall emissions. They currently contribute 17% of the U.S. total.

We think this graph may pique your students’ attention when you cover crossover charts in Chapter 7, Process Strategies, or when you discuss life cycle ownership in Example S2 in Supplement 5, Sustainabilty.

Classroom discussion questions:

What assumptions are made in this analysis?
When do you think EVs will take over for gas-powered vehicles in the U.S.?

OM in the News: The EV Revolution’s Missing Link

While EVs can be powered up at home, a fast-charging infrastructure is essential to getting beyond their current limited adoption, writes The Wall Street Journal (Feb. 27-28, 2021). But there are problems: too few charging stations, too much demand at the stations that are available, broken chargers, confusing payment systems, exorbitant electricity rates, and uncertainty over how long cars need to charge.

So far, only Tesla has offered a reassuring pitch about conveniently and reliably recharging on the go. Tesla built a nationwide fast-charging infrastructure for its vehicles even before its cars were widely adopted. But this technology doesn’t work on non-Tesla cars. While Tesla offered “open source” charging technology, using it meant signing off on terms the world’s biggest automakers were unwilling to accept. They instead collectively adopted a competing standard in the U.S., making their vehicles incompatible with Tesla’s.

Drivers of EVs who wish to take them on road trips need to plan ahead carefully

Building the requisite charging infrastructure for the rest of the EV universe will be expensive. The U.S. government has proposed building a network of 500,000 chargers in 5 years, which would cost billions–and probably won’t be profitable. There are currently about 128,000 gas stations in the U.S., but only about 5,000 fast-charging stations. The result is a patchwork of stations is improving but still needs work.

Many stakeholders—from automakers and charging companies to utilities and government agencies—have an interest in a reliable national network of fast chargers. But if the sole source of income for these charging stations is from dispensing electricity, it doesn’t appear they’re a viable business. The average fast-charging station, charging market price for electricity, would take 20-25 years to pay off. Part of the problem is that when in use, a single fast-charging stall can draw the equivalent of a whole neighborhood’s electricity needs. So it can be very expensive to connect a station with up to a dozen individual chargers to the local electrical grid, and secure enough energy supply.

Classroom discussion questions:

How does this problem relate to the Triple Bottom Line discussed in Supp. 5 of your Heizer/Render/Munson text? (see p. 195)
What do you see as the future for EVs in the U.S.? Will it be different in Europe? Why?

OM in the News: The U.S. Needs to Make More Batteries for EVs

The auto industry’s quickening shift to electric cars is spurring investment in another emerging industry in the U.S.: manufacturing lithium-ion batteries for those vehicles, reports The Wall Street Journal (Jan, 27, 2021). China currently dominates the market for producing electric-vehicle batteries. But as auto makers spend billions to build more plug-in models in the U.S., several companies are looking to expand the supply chain for batteries and related materials in North America—a region that has long relied on imported components.

The U.S. needs to reduce its reliance on China if it wants to lower costs and remain competitive in making EVs and their batteries domestically. U.S. battery-making capacity is expected to increase sharply over the next decade, rising more than sixfold from 60 gigawatt hours of annualized production in 2020 to about 383 gigawatt hours in 2030.

Miniature lithium-ion battery cells at Sila

Battery-manufacturing giants such as South Korea’s LG Chem and SK Innovation are building big factories in the U.S. to expand American production of electric-car batteries. LG Chem is building its factory in Ohio as part of a joint venture with GM. Tesla is also expanding its battery-making capabilities, seeking to cut costs and shorten its supply chain by making some materials in-house. N. American firms Sila Nanotechnologies, Romeo Power, and Lithium Americas are planning U.S. factories as well.

China makes more than 70% of the world’s lithium-ion batteries. It also refines and manufactures the majority of minerals and materials needed for those batteries. Moving more battery production to the U.S. will help car companies and their suppliers bring down costs, a step that is important for consumers to adopt EVs more widely.

Classroom discussion questions:

What are the critical components of these batteries, and does the U.S. have a supply of them?
What is the danger of opening a large number of battery manufacturers?

OM in the News: The Secret to Affordable Electric Cars?

Melting down batteries for recycling is difficult and sometimes hazardous work.

The cost of batteries has long been the biggest obstacle to making electric cars affordable for the masses, reports The Wall Street Journal (Aug. 29-30, 2020). As a result, electric vehicles still carry a hefty $12,000 average price premium compared with gas engine cars.

Since 50% to 75% of the cost of a battery for the industry now lies with its raw material, Redwood Materials, in Carson City, Nevada, sees potential for recycling to lower costs. Almost every day old iPhones and other used personal electronics arrive by the truckload at Redwood, where workers crack them open, pull out their batteries and strip them for raw materials. The firm believes refuse holds the key to driving the electric car revolution forward—and making the vehicles affordable enough for everyone to own one. (Another source is the supply of used EV batteries, which is exploding. Half-a-million EVs are expected to be scrapped in 2025).

For most battery manufacturers, where to find all the nickel, cobalt and lithium needed to make the batteries that power Tesla’s cars and their growing list of rivals is the number one problem. Extracting those materials from nature, through mining and other processes, is costly and difficult, and production is lagging far behind expected demand.

Redwood Materials’ tack is to quietly build the biggest car battery-recycling operation in the U.S., betting that it can perfect a fast and efficient way of collecting and repurposing those materials to disrupt the centuries-old mining industry. “Forever, the entire market has been dictated by the commodity price of these metals,” said Redwood’s CEO. “It is work that is essential if the industry is going to continue to increase production of electric cars at the pace companies are planning.”

Classroom discussion questions:

When federal subsidies end, will demand for EVs remain high?
What are the advantages and disadvantages of recycling vs. mining for raw materials?

OM in the News: The Key to Electric Cars is Batteries–And There Aren’t Enough of Them

GM and South Korea’s LG Chem plan to build a $2.3 billion battery factory in Ohio, the latest example of an auto maker plowing money into the development of electric cars. The new plant would be among the world’s biggest producing battery cells for electric cars, rivaling Tesla’s Gigafactory in the Nevada desert, reports The Wall Street Journal (Dec. 7, 2019). Auto makers have been joining forces with battery makers as they gear up to spend about $225 billion to develop new electric-vehicle models over the next several years. (GM plans to introduce at least 20 electric models globally by 2023).

GM said the new battery plant, which would employ more than 1,100 workers, would have a capacity to manufacture enough batteries annually to produce more than 30 gigawatt hours. (Tesla’s plant has output of about 24 gigawatt hours). GM and LG Chem will co-develop and assemble battery cells to be used in the auto maker’s electric vehicles, including a battery-powered truck GM plans to introduce in 2021. GM said the joint venture with LG will speed GM’s electric-vehicle development and reduce costs. Toyota, for example, is finding it hard to build enough batteries to keep up with rising demand for hybrids, which use a combination of gasoline and battery power. “We can assemble the cars,” said one Toyota exec. “The assembly is not the bottleneck. It’s the battery itself.”

Auto union officials have expressed concern that the expansion of electric vehicles poses a long-term threat to auto-factory employment, because they require less manpower to produce than gasoline-powered cars. Battery-cell plants are highly automated and require different skills than those needed at traditional car factories. The plants’ employees include test technicians, computer programmers and equipment engineers.

Classroom discussion questions:

Why is there a battery bottleneck?
Prepare a SWOT analysis of GM’s strategy.

OM in the News: Amazon Delivery Aims Electric, But Employees Want More

Amazon plans to buy 100,000 electric delivery vehicles as it seeks to reduce its carbon emissions in the face of criticism of its environmental impact, reports The Wall Street Journal (Sept. 20, 2019). The e-commerce giant is ordering the electric vehicles from startup Rivian Automotive, in which it invested $700 million this year. Amazon said the vehicles will start delivering packages to customers in 2021. The company plans to have 10,000 of the new electric vehicles on the road by 2022, and all 100,000 by 2030. Amazon has built up its delivery fleet in recent years and has become a force in the shipping industry, although it still works with companies such as UPS.

The sustainability commitments are part of a new climate pledge that promises Amazon will report greenhouse-gas emissions regularly and implement strategies to reduce carbon emissions. Amazon said it expects 80% of its energy use to come from renewable sources by 2024, up from 40% now. It is working toward its facilities being 100%-powered using renewable energy by 2030, helped in part by the development of large-scale wind and solar projects.

Amazon’s climate pledge comes one day before more than 1,550 Amazon employees world-wide threatened to walk out of work if the company didn’t do more to fight climate change. The group of Amazon employees said that the company’s announcement was a win, but said they still plan to walk. “The Paris Agreement, by itself, won’t get us to a livable world. Today, we celebrate. Tomorrow, we’ll be in the streets,”

Classroom discussion questions:

What are various components of Amazon’s delivery strategy?
Should employees be able to dictate the firm’s sustainability strategy?

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?

OM in the News: VW’s Strategy Switch

“As the world’s largest automaker, Volkswagen in some ways better resembles a country than a mere corporation,” writes Businessweek (April 2, 2018). At more than 100 factories worldwide, the company’s 12 brands make 355 models in millions of color and trim combinations, employing more than 600,000 people who generate $284 billion in revenue.

It’s hard to imagine that such a robust firm could ever be at risk of collapse, as it was less than 3 years ago, when VW was consumed by one of the largest scandals in automotive history. The systematic effort to cheat on emissions tests—employees wrote software that made diesel cars appear cleaner than they were—brought the company to its knees.

And yet today—$30 billion in compensation and repair costs and 11 million affected vehicles later—VW is comfortably defending its global sales crown from a challenge by Toyota. Consumers’ willingness to forgive VW is remarkable, given the enormity of its wrongdoing: Scientists at the MIT estimate the extra pollution generated by its rigged cars will contribute to more than 1,200 premature deaths. (VW was also fortunate that the vast majority of the affected cars were sold in Europe, where emission rules are less stringent than in the U.S. Germany and the EU ruled that VW could simply modify the 8 million polluting vehicles.)

Emboldened by this unexpectedly rapid rehabilitation, VW late last year embarked on by far the largest program of electrification in the global car industry, pledging to spend $25 billion to develop battery-powered or hybrid variants of every one of its models by 2030. The goal is to make EVs cheap and commonplace, inspired by its 1960s Beetle. From next year, the company plans to release a new EV or hybrid model every month.

The diesel crisis may ironically prove to have been a good thing: a trauma that forced VW to ask hard questions about its operations and strategy and what a carmaker will need to look like to survive the 21st century.

Classroom discussion questions:

What factors will impede the new VW strategy?
Examine each of the 10 OM decisions. How they will be impacted by an EV strategy?