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Mobility and the electrified supply chain

At this point, there is no slowing down the electric vehicle (EV) revolution. Even disappointing sales in 2020 hasn’t stopped the capital investments in EV manufacturers, with upstarts and more established carmakers elbowing their way into the North American market.

Although money and interest are not a problem for those looking to get into the EV game, institutional knowledge and raw materials can be since this is such a new part of the industry. In fact, it is often said, EV makers are more akin to tech companies than traditional car manufacturers.

In the past, a car manufacturer just starting out would have turned to Detroit for designers and engineers, but EV makers also need the type of software talent found in Silicon Valley and Austin. Bosch recently reported that a car built in 2010 used 10 million lines of code, and within a decade, it had increased tenfold to 200 million lines of code in 2020. Vehicles of tomorrow will have 300-500 million lines. As far as the supply chain, the market is wide open to companies with a little ingenuity and some capital to invest. Most importantly, every EV manufacturer needs a better battery — no matter how good theirs is currently, it is not good enough … yet.

Manufacturers are revving their engines for EV technology

Manufacturers and suppliers alike are investing what they can and partnering for efficiency. General Motors and LG Chem, one of the world’s largest lithium-ion battery makers, partnered to create a battery they announced will help lower their EV cars’ prices and hold a charge for up to 450 miles. (Tesla’s range is a little over 400 miles.) Ford Motor Company, which had said this past summer would buy its batteries from a third party, already changed course, with its new CEO saying in November the company is exploring options to build Ford batteries internally.

Despite those announcements, loads of other battery manufacturers and car companies are pushing to make the cheapest, most efficient, longest-running battery on the market.

That’s just one component, though. EVs will require many features unique to their type of car in addition to many of the same parts used by traditional carmakers, with a few modifications. EVs still need seat covers, windshields, chassis, tires, seatbelts, that is, all the typical interior components of the same quality as combustion cars, yet manufactured with a lighter weight, equally durable material.

Finding the right supplier for new parts takes knowledge of the industry because those suppliers might not exist yet. The EV industry may launch a whole new crop of suppliers. However, a more probable scenario is current suppliers will create new product lines for EVs, retrofitting facilities to accommodate new lines, and applying Industry 4.0 concepts to support agile manufacturing. The problem is the suppliers themselves might not see how they can pivot to work with EVs, and this is where suppliers must focus on retaining competitive advantage in the new EV ecosystem.

Suppliers must determine how to bring EV technology into their plant

Suppliers and upstarts need to act now, deciding whether they should start from scratch with their own manufacturing plants or partner with a more established company that already has suppliers and facilities. For upstart carmakers, the latter option would allow them to develop their own designs and market their products, which is a lot less capital intensive. It also lets them be more flexible than the original equipment manufacturers (OEMs) since they don’t have to commit to creating as many product lines or selling as many cars.

For example, Volkswagen is expecting to spend about $800 million at its Chattanooga manufacturing plant in order to start production of its “ID.4” EV there by 2022, according to WardsAuto. In the meantime, Tesla will have three new “gigafactories” coming online between 2019 and 2021. Its Shanghai plant started production in December 2019, delivering 250,000 EVs in 2020, with eventual capacity of 500,000 a year. Tesla broke ground on “Giga Berlin” in June 2020, with production scheduled to begin in mid-2021 and it, too, will be able to produce 500,000 EVs annually. It also started construction on its $1.1 billion plant in Austin in July 2020 and is expected to start production in mid- to late 2021. The carmaker expanded its plans in Texas beyond building only its Cybertruck to producing batteries and a few different models to more efficiently serve the eastern part of the country. Capacity at the Texas factory is unclear, but the campus is on more than 2,100 acres compared to its Shanghai and Berlin counterparts’ 210 acres and 740 acres, respectively.

Though Tesla may be the best-selling EV player to date, there is still room for upstart competitors. They face an uphill battle since they do not have the cachet of Tesla or the brand recognition of one of the OEMs, so they have to stand out somehow.

EVs like Arrival and Rivian accomplish this by having niche products. Arrival focuses on building electric vans and buses for commercial use. It is also developing a $46 million microfactory concept in South Carolina to build its vehicles in cell-based operations that require smaller footprints and much lower capital expenditures. UPS already ordered 10,000 delivery vans from the company. Alternatively, Rivian’s specialties are “adventure vehicles,” including its sport truck and SUV, but its commercial side is fulfilling 100,000 electric vehicles by 2030 for Amazon for last-mile delivery.

Other carmakers will try to differentiate from others with their transaction models. While Tesla is the only car manufacturer that sells directly to the consumer, other EVs may follow this distribution model. Once legal hurdles clear, the concept of dealerships will go the way of Blockbuster Video. Eventually, buyers will order directly from the manufacturer, and the vehicles will drive themselves to their new owners’ driveways, making the time-consuming process of buying a car as effortless as streaming a movie off Netflix.

Driving towards the future

Navigating this vastly changing EV landscape can be tricky. Our Baker Tilly mobility and transportation professionals are adept at providing an evaluation of your supply chain to determine how your manufacturing plant can redefine and optimize their business to enter the EV space.

Peter J. Pearce
Erich Bergen
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