With American and European Original Equipment Manufacturers (OEMs) increasingly focusing on developing robust domestic supply chains, the EV market is experiencing a significant transformation. Driven by various factors including economic, environmental, and geopolitical considerations, this strategic shift is expected to enhance competitiveness, sustainability, and innovation, with the aim of positioning these regions at the forefront of the global EV industry. From the benefits of having a domestic supply chain for OEMs, the EV market, the battery sector and overall cost advantages, how will this impact EV manufacturers?
Benefits for OEMs
Enhanced Control
Domestic supply chains offer OEMs greater control over their production processes, allowing for more agile responses to market demands and potential disruptions. This control extends to quality assurance, enabling higher standards and consistency in EV manufacturing. Indeed, Ford announced a significant investment in its BlueOval City complex in Tennessee, as part of a broader $11.4 billion initiative with SK Innovation. This involves building two battery plants and an EV assembly plant in the U.S. As a result, this new campus will strengthen Ford’s domestic supply chain for local EV production, in addition to fulfilling the OEM’s mission to manufacture zero-emission EVs at scale for American customers. Furthermore, close proximity to suppliers enables better communication and collaboration, fostering innovation and rapid problem-solving.
Reduced Transportation Costs and Emissions
Localizing the supply chain reduces the need for long-distance transportation, significantly cutting down logistics costs and associated carbon emissions. This not only makes production more economical but also aligns with the sustainability goals that are central to the ethos of the EV industry. For Tesla, the OEM’s Gigafactory in Berlin-Brandenburg is designed to serve the European market. This strategic location allows Tesla to manufacture EVs closer to its European customer base, significantly reducing transportation needs. The localization also includes working with regional suppliers, which enhances the overall efficiency of the supply chain and lowers carbon footprints associated with long-distance transportation.
Local Economic Growth
Developing domestic supply chains stimulates local economies by creating jobs and encouraging investment in advanced manufacturing technologies. This economic boost can lead to increased consumer spending and further growth within the industry, creating a positive feedback loop that benefits both the economy and the automotive sector. In the case of Volkswagen Group-owned battery company PowerCo SE, the manufacturer is working towards opening its first plant in Canada, with the aim of producing an annual capacity of up to 90GWh. The projected investment of up to CAD $7 billion by 2030 (the equivalent of 4.8€ billion) could generate up to 3,000 highly skilled jobs at the factory and create thousands of additional indirect jobs in the region.
Improving the EV Market
A robust domestic supply chain can accelerate the growth of the EV market by ensuring a steady and reliable supply of critical components. This reliability reduces the risk of production delays, enabling OEMs to meet increasing consumer demand and support the broader adoption of EVs. In the case of Volkswagen, the German automaker has made significant strides in localizing its supply chain to ensure a steady and reliable supply of critical components. Indeed, Volkswagen’s strategy includes the establishment of the Salzgitter Center of Excellence, which focuses on battery cell production and innovation within Germany.
Furthermore, domestic supply chains can cultivate a stronger innovation ecosystem by fostering closer collaboration between OEMs, suppliers, and research institutions. This synergy can lead to faster advancements in EV technology, improved vehicle performance, and the development of new, innovative products that can give OEMs a competitive edge.
Advantages for the Battery Sector
Battery production is a crucial aspect of the EV supply chain, and domestic manufacturing can mitigate risks associated with reliance on foreign suppliers. This security is particularly important given the strategic nature of battery components and the potential for geopolitical tensions to disrupt supply lines. For Ford and SK, the two have partnered to build new EV battery facilities in Stanton, Tennessee, and Glendale, Kentucky. This move aims to supplement their existing production and secure a steady, reliable supply of critical battery components within the U.S. These facilities are part of a broader strategy to localize the supply chain, ensuring that battery production can continue uninterrupted despite potential geopolitical tensions or supply chain disruptions from overseas sources.
Moreover, domestic supply chains can support the development of advanced recycling and sustainability initiatives within the battery sector. Indeed, proximity to recycling facilities and innovation hubs can facilitate the creation of closed-loop systems, reducing waste and the need for raw material extraction.
Cost Benefits
Making Cheaper EV Batteries
As domestic supply chains mature, OEMs can achieve economies of scale that lower the cost of battery production. Large-scale manufacturing facilities and streamlined logistics contribute to reduced per-unit costs, making EVs more affordable for consumers. Additionally, proximity to advanced manufacturing hubs and research institutions can drive innovation in battery production processes, leading to more efficient and cost-effective methods. Innovations such as automation, advanced materials, and improved energy storage technologies can further reduce production costs. For GM, the OEM is collaborating with LG Energy Solution through their Ultium Cells joint venture, especially the new $2.6 billion Ultium Cells plant in Lansing, Michigan. Through this partnership, GM expects to reduce battery cell costs to approximately $87/kWh by 2025.
Cheaper Manufacturing than in China
While China has traditionally been seen as a cost-effective manufacturing base due to lower labor costs, rising wages and regulatory complexities are narrowing this advantage. Domestic supply chains in the US and Europe can leverage advanced automation and efficient production techniques to compete on cost without compromising on quality. Furthermore, tariffs and trade policies can significantly impact the cost of importing components from China. By localizing production, OEMs can avoid these additional costs and reduce their exposure to trade-related risks, making domestic manufacturing a more stable and predictable option.
In addition to this, consumers and regulators in the US and Europe are increasingly prioritizing sustainability and ethical considerations. Domestic supply chains allow OEMs to adhere to stringent environmental and labor standards, enhancing their brand reputation and meeting consumer expectations for ethical products.
Reducing Battery Costs with Addionics
Further battery cost reductions can be made with Addionics’ 3D Current Collectors. Indeed, this chemistry agnostic technology combined with smarter battery structures reduce the amount of materials needed, which can lower the production costs of EV batteries. This drop-in solution can be incorporated into any new or existing battery chemistry, regardless of the battery components used. Furthermore, the AI-driven structural optimization algorithm allows for seamless integration of software with battery hardware, resulting in a comprehensive and intelligent system. This capability enables leading EV manufacturers to achieve considerable cost reductions while simultaneously increasing their profitability.
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