The Supply Chain Matters blog provides a 2019 mid-year perspective on the strategic transition of global automotive supply chains toward producing more electrically powered cars and trucks, and especially supply management related to strategic metals required for higher volumes of manufacturing.

Included in our Ferrari Consulting and Research Group 2019 Predictions for Industry and Global Supply Chains (Available for complimentary downloading in our Research Center), is our customary section related to what we believed would be unique industry-specific challenges for the year. As a carryover from our prior year prediction, we again predicted that Global Automotive Industry Supply Networks would experience continued challenges. Our prediction was that the industry would continue to be challenged by the complex and difficult strategic transition toward producing more electrically powered and autonomous driving vehicles. We further anticipated growing global demand supply and demand imbalances, both this year and in the five-year horizon. VW Buzz Electric Cargo Van

A carryover from 2018 is the sourcing of adequate and cost-effective supplies of the unique rare earths and metals required to support larger production volumes of electrically powered autos and trucks. The largest portion of cost-of-goods sold are the cost of storage batteries and electrical components. Also, at-stake is positioning for global design and manufacturing leadership for electric vehicles.

Last year, metals analysts began to predict that given the strategic demand over the next 10-15 years, the supply of metals such as lithium, nickel, copper and cobalt would be a challenge. For some metals, shortages would not be due to a lack of raw material but rather a lack of mines available to meet market demand.

While lithium is mined across the globe in North America, South America, Europe, Africa, and Asia, nearly half of the global lithium supply comes from Argentina, Bolivia, and Chile. One of the hottest strategic markets is that of China, where the government has imposed policies that favor the production of electric powered vehicles over that of fossil-fuel. I

In December 2018, the Wall Street Journal reported that at least 32 new electric car manufacturing factories were in the pipeline across China. Tesla added its own presence in January of this year with the groundbreaking for a combination automobile and lithium-ion battery production facility located just outside the city of Shanghai, with the capacity to build upwards of 500,000 vehicles annually.

After the “diesel-gate” incidents involving global manufacturer Volkswagen, European governments and automotive consumers have stepped-up calls for more development and availability of electrically powered cars and trucks. Other European automakers have followed suite each with multi-year plans for a new line-up of vehicles.

 

Mid-Year Snapshot

Passing the 2019 mid-year point reflects added warning signs of strategic metals shortages.

With China remaining to serve as the largest global source of rare earths, the escalating trade war involving the United States threatens to either allocate such metals to its own domestic needs, or limit supplies to the nations over the coming years.

Reuters reported last week that nickel prices jumped to their highest prices in five years, surging 49 percent since the start of the year, fueled by speculation that top producer Indonesia will reimpose export restrictions sooner than planned.

Bloomberg reported this month that electric automakers are increasingly concerned over the longer-term supplies of this metal. Predictions are that the class one, high-purity material utilized for battery production is likely to outstrip demand in five years. One global nickel miner is quoted as meeting with Tesla, which has: “.. recognized the biggest risk from a strategic supply point of view is nickel.” By one prediction, batteries will overcome stainless steel as the primary use of this metal. Japan based Sumitomo Metal Mining forecasted in June that the market faces a deficit of 51,000 tons in 2019 alone. Bloomberg separately reported that automakers and related industries in Europe and North America are focusing on how to secure future supplies of battery-grade nickel — and also on ensuring there’s sufficient cobalt after the market tightens from about 2021 to 2022.

Cobalt prices have tumbled since early 2018 as new supply from incumbent producers in the Democratic Republic of Congo, and as some battery makers seek to reduce the amount of the metal in their packs. Longer-term, the supply situation is unclear, given the advance of new battery technologies.

According to The Wall Street Journal, a recent slide in copper prices threatens to limit investment in new mines that could lead to sizable shortages in the coming years.  Prices are fallen to two-year lows on growing fears of a decline in global trade volumes, while the price movement remains highly dependent to China’s consumption patterns, accounting for about half of global demand.

 

Supply Chain Matters Perspective

While many global automotive manufacturers are rightfully allocating significant investments or named strategic partnerships focused on technology transformation, strategic supply sourcing and management will be an added need as-well. The challenge is motivating mining companies to invest in added strategic supplies of key metals. The counter challenge is likely perception that global manufacturers collectively may be too optimistic on long-term market growth within certain geographic regions.

With metals markets increasingly more focused on short-term revenues and returns, miners will likely be seeking longer-term supply commitments and assurances of some rationality in expected production volumes.

Similar to commercial aircraft manufacturing, automotive and truck producers must continue to depend on strategic commodity sourcing and supply experts that can formulate such long-term agreements while partnering with other industry experts to aggregate a realistic prediction of long-term vehicle demand levels.

None the less, mining investment decisions are required now to support future production needs. As noted in our prior Supply Chain Matters automotive industry focused blogs, with global transportation becoming far more expensive, the strategic positioning of supply flows and battery cell production are also key

Bob Ferrari

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