Tag: EVs

OM in the News: China’s Lithium Supply Chain Strategy

Lithium, a soft, silvery metal, is a component in the lithium-ion batteries that power electric vehicles and smartphones. By the end of the decade, demand could outstrip supply by some 300,000 tons, reports The Wall Street Journal (May 25, 2023).

Many Western companies have unwound their assets in Zimbabwe, which has been under U.S. and EU sanctions, but Chinese companies aren’t hindered by such concerns.

Chinese companies have long dominated lithium refining, but their hunt to secure a greater share of the world’s supplies of the metal is leading them to buy up stakes in mines throughout the developing world as they face increasing resistance in Western countries. It is a risky strategy. China is spending billions on stakes in nations that have histories of political instability, local resistance and resource nationalism. Projects often face protests, regulatory delays and even cancellations. 

If China succeeds, however, it could secure access to 1/3 of the world’s lithium-mine production capacity needed by 2025. (It currently holds only 8% of the world’s reserves). China’s drive to secure a greater hold on the world’s lithium is fueled by concerns that its booming electric-vehicle industry could struggle to get access to supplies as tensions with the U.S. and its allies rise. Canada and Australia, with some of the world’s largest lithium reserves, have recently blocked new Chinese investments over national-security concerns.
In the past two years, Chinese companies have spent $4.5 billion acquiring stakes in nearly 20 lithium mines, most of them in Latin America and Africa. Those include investments in countries such as Mali and Nigeria, where they face security threats from terrorism, and places such as Zimbabwe, Mexico and Chile, which have tried to gain greater control over their mineral resources. Zimbabwe recently imposed an export ban on unprocessed lithium, effectively forcing foreign companies to process it there. Mexico just signed a decree to fast-track nationalization of its lithium reserves.
Chile, along with Bolivia and Argentina, is also discussing the creation of a lithium cartel, similar to that of OPEC. Despite the challenges they face, Chinese companies have advantages over their Western counterparts. CATL, for example, is a battery giant, with the political backing of Beijing and a strong network of companies along the supply chain.
Classroom discussion questions:
1. What other rare earths and minerals are needed in the EV and electronics global supply chain?
2. What is the U.S. strategy for dealing with these minerals?

OM in the News: A Green Mining Mirage

The history of the mining industry is littered with environmental destruction, pollution and detrimental impacts on local populations. But the raw materials it provides—including nickel, cobalt and lithium—are crucial to the transition for electric vehicles. The global race to secure a supply of these critical materials is on, but can it be done sustainably?

A nickel mining site in Sorowako, Indonesia

The big global miners’ stark message: Recycling is the only green source because most deposits contain such low concentrations of metals and minerals that, while methods can be improved to minimize damage, recovering the materials will always be messy and destructive. Most miners have been making efforts to clean up their practices. Some are even investing in recycling, but these aren’t likely to produce a meaningful supply any time soon.

Eventually, the collection infrastructure, recovery processes and recycling facilities may be developed and scaled up to the task, reports Wall Street Journal Pro ( May 11, 2023). There are plenty of old electronic devices cluttering up our drawers that could yield some metals, but it will take at least a decade or two for electric-vehicle batteries to be exhausted and become a sizable feedstock for recycling. Until then, we have mining.

Indonesia supplies about half the world’s nickel, a crucial input for EV batteries. Ford and VW are investing billions of dollars into the local supply chain as a low-cost source that they can directly control. But there are serious questions about destruction of the country’s rainforests in pursuit of the metal. Russia also mines nickel, but westerners are wary of buying from the country after its forces invaded Ukraine. New Caledonia—a French island group in the Pacific—is another possible source, but there are concerns about environmental impact there too.

Another option is to mine nickel from the seabed. It is less destructive than Indonesian sources, but environmental groups worry about damage to the relatively untouched deep sea ecosystem. A major problem is—ironically—that heightened scrutiny of new projects on environmental and social grounds is significantly raising the costs of the new mines necessary to fuel a low-carbon global economy.

Until there are significant developments in recycling, battery technologies, or both, there are tough trade-offs to be made in the transition to EVs.

Classroom discussion questions:

  1. Why is there a shortage of mines to produce the minerals needed in EV batteries?
  2. What are the ethical issues involved in the transition to EVs?

OM in the News: ‘War of the States’ and Lavish EV and Chip Maker Subsidies

States have long competed for big employers, writes The Business Journal (April 2, 2023). But now they are floating more billion-dollar offers and offering record-high subsidies, lavishing companies with grants and low-interest loans, municipal road improvements, and breaks on taxes, real estate, power and water.

“We’re in the second war of the states,” said one site selection consultant. “It is kind of a Wild West moment. It’s wild money and every state seems to be in on it,” added a U. of Texas professor. Georgia, Kansas, Michigan, New York, North Carolina, Ohio and Texas have made billion-dollar pledges for a microchip or EV plant, with more state-subsidized plant announcements by profitable automakers and semiconductor giants surely to come.

2022 set a record for the number of billion-dollar-plus incentive deals. At least eight were finalized, though that figure might be higher since such deals can be cloaked in secrecy and take time to come to light. More than $20 billion in public money was committed to subsidizing those known megadeals.

The subsidy offers are generally embraced by politicians from both major parties and the business elite, who point to promises of hundreds or thousands of jobs, massive investments in construction and equipment, and what they contend are immeasurable trickle-down benefits.

Still, academics who study such subsidies find them to be a waste of money and rarely decisive in a company’s choice of location. Studies conclude “they do little, if anything, to promote meaningful improvements in economic outcomes.”

The mounting cost of competing for the projects hasn’t dissuaded states from trying. On the contrary, they’re clambering to outdo each other. Michigan was stung by hometown Ford’s $11 billion commitment in 2021 to build EV and battery plants in Tennessee and Kentucky. It responded by pledging more than $2.5 billion for EV projects by Ford and GM and plants by makers of EV batteries and battery components. Pennsylvania has yet to lure a microchip or EV factory, and the state is sounding the alarm after watching neighboring Ohio land a $20 billion Intel plant. Texas promised to win passage of “economic development tools,” saying the state lost out on a massive Micron semiconductor plant because it couldn’t match the $5.5 billion in tax credits offered by New York.

Classroom discussion questions:

  1. Financial incentives are just one aspect of location decisions. What other factors (a topic in Chapter 8 in your text) do firms consider?
  2. What is driving the massive incentives states are offering?

OM in the News: The EV Supply Chain and Canada

International giants are investing billions of dollars in Canada’s EV and mining sectors

Multinational companies are pumping billions of dollars into Canada’s electric-vehicle manufacturing sector, lured by government incentives, access to raw materials and cheap renewable energy. VW just announced that it had chosen a site in Ontario to build its first battery-cell plant outside Europe, citing Canada’s natural resources as one of the reasons. VW’s plan follows recent EV and battery-making project investments by GM, Stellantis, Michelin Tires, Brazilian miner Vale, U.K. mining company Rio Tinto, and German chemicals company BASF, among others.

According to The Wall Street Journal (March 23, 2023), Canada is benefiting from a push by the U.S. and its allies to reduce their dependence on China for the critical minerals used in EV batteries and military equipment.  In one example, Stellantis and South Korea’s LG are building a $4.1 billion battery plant in Windsor, Ontario, with 2,400 workers starting next year. As we discuss in Chapter 8 (Location Strategies), incentives are common and Canada has had to pay up to win the investments, scrambling to keep up with the U.S., which has unveiled a raft of subsidies meant to draw investment in its EV industry. Canada gave $732 million to land the Stellantis/LG venture.

Canada is among the most expensive countries in the world to build cars and the highest-cost market for car assembly in the North American free-trade zone. To save money, auto makers in recent decades moved thousands of manufacturing jobs and motor-vehicle assembly capacity to Mexico, dropping auto employment in Canada from 175,000 to 110,000.

The Canadian government is pitching itself as a counterweight to China in the race to develop EV technology. China leads the world in processing metals and minerals like nickel, copper, lithium and cobalt. It also is home to 78% of the world’s cell-manufacturing capacity for EV batteries. Helping Canada’s pitch: It is one of the few places in the Western Hemisphere with the raw materials companies need to make their EVs. Electra Battery Minerals Corp. is the only facility available in North America for processing battery-grade cobalt, a metal used in batteries. Rio Tinto is upgrading an iron-ore and titanium refining facility in Quebec with a $500 million investment.

Access to hydroelectricity was a key reason GM and others chose Quebec. The renewable power helps lower GM’s greenhouse-gas emissions. Quebec also offers the lowest industrial rates for power in North America.

Classroom discussion questions:

  1. Summarize the reasons more companies in this field are looking to Canada.
  2. What is China’s strength in the EV supply chain industry?

 

OM in the News: Is the EV Supply Chain Ready?

“The car industry is staging a revolution,” writes The Wall Street Journal (Nov. 14, 2022)—a transition from the gas engines that have powered vehicles to a battery-propelled future.  But a key part of the reinvention remains unfinished and filled with risk: the supply chains for the parts needed to assemble electric vehicles.

The guts of EVs— batteries, electric motors and the electronics that mesh them together—are nothing like the engine blocks, transmissions and drive shafts that move today’s cars. “This industry is going through a transformation like it hasn’t seen since World War II. The whole supply structure is going to change,” says an industry expert.

On the upside, EVs require vastly fewer parts: An EV motor has only about 20 moving parts, compared with 200 in an internal combustion engine. Yet the industry is young, and finding reliable sources for EV parts is daunting.

Some pinch points: The batteries and most of the EV motors rely on unusual metals that can be costly and hard to obtain. The vehicles’ electronics require new chips from a semiconductor industry still working through pandemic-era backlogs. (EVs require more than twice as many chips as internal-combustion vehicles— 1,300 versus 600). Even the aluminum trays that hold batteries beneath the floors of electric vehicles can be scarce. There are supply chains within supply chains.

One of the biggest potential problems is finding sufficient and affordable supplies of key raw materials, including lithium, nickel, manganese and cobalt. Much of the mining and processing of these metals is based in just a few countries. Two-thirds of cobalt is mined in the Congo, where workers face dangerous conditions. Australia mines about half the lithium, while nickel is centered in Indonesia. The refining of these materials for use in batteries is even more concentrated: China processes 70% of the world’s lithium and cobalt, and 99% of the manganese.

Some car makers are already predicting battery shortages. “Put very simply, all the world’s battery cell production combined represents well under 10% of what we will need in 10 years,” says the CEO of Rivian Automotive. He added that “90% to 95% of the battery supply chain does not exist.”

Finally, the majority of motors used in today’s EVs rely on permanent magnets which require costly rare-earth metals. The dominant supplier is again China, and producing the metals can cause pollution and environmental damage.

Classroom discussion questions:

  1. What positive supply chain issues does the EV industry expect?
  2. What supply chain constraints are expected and how will they be addressed?

OM in the News: The Looming Electric-Vehicle Battery Shortage

 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.

A Rivian truck being assembled at the company’s factory in Normal, Ill.

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:

  1. What can Rivian’s operations managers do to secure more battery cells?
  2. What are the major OM issues facing EV makers?

OM in the News: Bad Supply Chain News for EV Makers

A lithium mine

Last year was the year of electric vehicles—global sales are likely to have hit a record, in turn pushing up battery demand. Now too much of a good thing is causing problems: Many key battery materials, including but not limited to processed lithium itself, are in short supply and prices are rising sharply.

Adding to the geopolitical risks for global auto makers, writes The Wall Street Journal (Jan. 24, 2022), is the supply chain concentrated in a country determined to make itself the EV capital of the world: China.

Lithium is the most spectacular example: Prices of lithium carbonate have quintupled in China from a year earlier. Other battery materials from nickel to cobalt have also been rising and could remain elevated as new supply will take time to come online. The rapid rise in demand for EVs has also created shortages in some lesser known components that go into batteries. For example, supplies of binder material polyvinylidene fluoride or PVDF—used to enable connections between electrodes—will likely be insufficient to meet demand until 2025.

Shortages are adding to already substantial concentration risks regarding China’s dominance in the EV supply chain. Most of the value chain for mining materials like lithium and cobalt is in China. China in general has more than 60% market share in the chemical processing and refining of critical battery minerals and that might be above 80% for some materials like cobalt and graphite. While other countries will also invest in more localized supply chains, China’s head start—in part due to years of generous EV subsidies which helped nurture a robust battery supply chain upstream—means it will remain dominant for the next few years at least.

Securing material supplies is also getting more important for car makers. They will increasingly need to either vertically integrate or establish joint ventures with battery suppliers. Tesla, for example, signed an agreement with an Australian mining firm this month to secure graphite supply.

EV sales have been speeding ahead, but the supply chain has a lot of catching up to do. That will cause a lot of headaches for EV makers in the months and years ahead—and potentially geopolitical jitters.

Classroom discussion questions:

  1. How can OM managers address this supply chain problem?
  2. What are the geopolitical issues involved?

Good OM Reading: Power Play–Tesla, Elon Musk, and the Bet of the Century

Tesla has earned a prominent place in auto history under the genius of Elon Musk. While the rest of the auto industry sought to protect its internal-combustion business under the assumption few people would buy an alternative, Musk showed that stylish, fast and fun electric cars would prove popular.

Musk’s approach to many manufacturing issues was, and is, keeping the assembly line moving while line problems are being fixed. He’s not a fan of the Toyota method, where a worker can stop the line until the problem is solved. He’s about volume. That may be one reason why the quality of Teslas is so variable. Some owners report their car is perfect; some say they were sold a piece of junk.

In 2016, Musk promised that a self-driving car, a Tesla semi truck and a new, possibly jet-powered roadster were imminent. None are remotely close to production. Since Tesla was founded in 2003, it has undergone a truly hellish 15 years, beset by rivals, pressured by investors, hobbled by whistleblowers, but lauded by its loyal supporters. Musk himself would often prove Tesla’s worst enemy.

Building the Teslas proved much harder than Musk expected, resulting in a” would-he or-wouldn’t-he” drama in 2018 to reach a weekly production level of 5,000 Model 3 cars—the volume needed to make the company sustainable. Problem after problem resulted in money-eating delays that left the Tesla and its employees badly shaken. Musk, often sleeping in the Fremont, California, factory, had dubbed it “Manufacturing Hell.”

Wall Street Journal reporter Tim Higgins had a front-row seat for the drama: the pileups, wrestling for control, meltdowns, and the success. His new book, Power Play, is an exciting tale that deals with a myriad of OM issues. You and your operations management students will find much worth discussing in class after reading Higgins’ book.

OM in the News: Inside the Race to Power Electric Vehicles

Atop a long-dormant volcano in northern Nevada, workers are preparing to start blasting and digging out a giant pit that will serve as the first new large-scale lithium mine in the U.S. in more than a decade — a new domestic supply of an essential ingredient in electric car batteries and renewable energy. The mine, on federal lands, could help address the near total reliance on foreign sources of lithium.

But the project, known as Lithium Americas, has drawn protests from a Native American tribe, ranchers and environmental groups because it is expected to use billions of gallons of precious ground water, potentially contaminating some of it for 300 years, while leaving behind a giant mound of waste

lithium mines

The fight over the Nevada mine is emblematic of a fundamental tension surfacing around the world: Electric cars and renewable energy may not be as green as they appear, writes The New York Times (May 7, 2021). Production of raw materials like lithium, cobalt and nickel that are essential to these technologies are often ruinous to land, water, wildlife and people. In addition to Nevada, businesses have proposed lithium production sites in California, Oregon, Tennessee, Arkansas and North Carolina.

Traditional mining is one of the dirtiest businesses out there. Its environmental toll has often been overlooked in part because there is a race underway among the U.S., China, Europe and other major powers. Echoing past contests and wars over gold and oil, governments are fighting for supremacy over minerals that could help countries achieve economic and technological dominance for decades to come.

“Our new clean-energy demands could be creating greater harm, even though its intention is to do good,” says the head of a group that vets mines for carmakers.

Classroom discussion questions:

  1. Why is this an OM issue?
  2. What is China’s strategy regarding “rare earths” such as lithium?

OM in the News: The EV Microfactory

Arrival, a small EV company, wants to replace the assembly lines automakers have used for more than 100 years with something radically different — small factories employing a few hundred workers, reports the Orlando Sentinel (April 27, 2021). The firm is creating highly automated “microfactories” where its delivery vans will be assembled by multitasking robots, breaking from the approach pioneered by Henry Ford and used by most of the world’s automakers.


The plants would produce tens of thousands of vehicles a year. That’s far fewer than traditional auto plants, which require 2,000 or more workers and typically produce hundreds of thousands of vehicles a year. The advantage is that its microfactories will cost about $50 million rather than the $1 billion required to build a traditional factory. Arrival says this method should yield vans that cost a lot less than other electric models and even today’s standard, diesel-powered vehicles.

arrival


Such vehicles are well suited to electrification because they travel a set number of miles a day and can be charged overnight. Arrival has already won over UPS, which has a 4% stake in the company and plans to buy 10,000 Arrival vans

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In Arrival’s factories, a motorized platform will carry unfinished vehicles among 6 different robot clusters, with different components added at each stop. The company is also replacing most steel vehicle parts with components made from
advanced composites. These parts are to be held together by structural adhesives instead of metal welds. The use of composites, which can be produced in any color, would eliminate 3 of the most expensive parts of an auto plant — the paint shop, the giant printing presses that stamp out fenders, and the robots that weld metal parts into larger underbody components. Each typically costs several hundred million dollars.


But automating auto plants is notoriously tricky. Tesla blamed overreliance on robots for the troubled start of its Model 3 production line. Manufacturing robots are usually programmed to do 1-2 tasks. Arrival is counting on its robots to handle a variety of jobs.

Classroom discussion questions:

  1. What are the advantages and disadvantages of microfactories such as Arrival’s?
  2. Why are robots the key here?

OM in the News: “The ICE Age is Coming to an End”

Yes, that’s the quote in The Wall Street Journal (Feb. 6-7, 2021). But its not what you might think. It refers to the internal combustion engine, which over 100 years has been engineered to near perfection. The innovation of the battery-powered electric vehicle, by contrast, has barely begun. Still, car experts believe battery-powered models—which are mechanically much simpler than those with gasoline engines—will prevail. Batteries recently scored a win at GM, which is phasing out gas powered vehicles by 2035.

The rise of rechargeable batteries is now a matter of national security and industrial policy. Control of the minerals and manufacturing processes needed to make lithium-ion batteries is the 21st-century version of oil security. The flow of batteries is currently dominated by Asian countries and companies. Nearly 65% of lithium-ion batteries come from China. By comparison, no single country produces more than 20% of global crude oil output.

Assembling lithium-ion batteries in Huaibei, China

To meet expected demand, global output of lithium, a metal also used to make nuclear bombs and treat bipolar disorder, has tripled in the past decade. Lithium is mostly mined in Australia and Chile. EV battery packs and motors currently cost about $4,000 more to manufacture than a comparable fossil fuel-burning engine. But by 2022, the difference will be $1,900—and will disappear by 2025. VW, Tesla, and GM are pushing battery prices down further as they race to lock up the giant capacity needed to power millions of EVs.

 Last year, the U.S. established a consortium of agencies to promote a domestic battery industry, and used the Defense Production Act to speed development of mines for rare-earth elements. The U.S. Energy Secretary just stated, “We can buy electric car batteries from Asia or we can make them in America.” The E.U. is also using industrial policy to foster the development of a regional battery sector, saying it wants a “closed value chain for battery cells to be created in Europe” from processing raw materials through recycling used batteries.

Classroom discussion questions:

  1. About 4% of car sales last year were EVs. Why was that figure so small and why might it change?
  2. Why is the supply chain strategically important? (See Ch.11 in your Heizer/Render/Munson text)

OM in the News: The Case for the Electric Delivery Van

When you think of electric vehicles, you might think first of a Tesla. But a more financially rewarding use of the technology could be the vans that deliver your online shopping, reports The Wall Street Journal (Jan. 23, 2021).

Until recently, such unassuming vehicles occupied an easily ignored niche within the multitrillion-dollar automotive industry. That is changing fast. Rivian just raised $2.65 billion to fund its rollout of EVs, including a delivery vehicle for Amazon.com, which holds a stake in the startup. And GM just created a new company, BrightDrop, to focus on selling EVs to the delivery market. It expects to ship 500 units to its launch partner, FedEx, this year.

Electric delivery vans operated by DHL in Germany

Electric vans are at the confluence of two big trends. One is the rise of e-commerce at the expense of bricks-and-mortar retail, to which the pandemic has given a boost. The other trend is vehicle electrification. The likes of UPS, DHL and FedEx have all committed to reducing their carbon emissions and need electric delivery trucks to do it. So has Amazon, which ordered 100,000 electric vans from Rivian, the first of them due later this year.

Logistics operators and small contractors are focused on careful cost calculations, including over the lifetime of their vehicles, as we illustrate in Example S2 of Supplement 5 (Sustainability in the Supply Chain). That increases the attractions of EVs, which tend to have low running and maintenance expenses. One reason such calculations are possible is that vans don’t typically need the long driving ranges required of passenger cars. Vans are often driven around cities for predictable distances and can be recharged overnight at depots.

Another advantage of EVs, as Tesla has shown, is the facility with which software can be integrated into their overwhelmingly electronic systems. Unlike Tesla fans, van owners stand to benefit financially from this advantage. Logistics is a data business. The more tools for cost-efficient routing, driving, loading and the like that manufacturers can offer fleet owners, the more business they will attract. 

Classroom discussion questions:

  1. What are the advantages and disadvantages of electric vans?
  2. Why are retailers like Amazon investing in these vans?