Electric vehicles represent the future of growth for automakers and most of the lithium-ion battery demand. Batteries are the largest component cost of EV manufacturing and aftermarket replacement. Automotive OEM supply chain professionals have typically procured batteries from the largest manufacturers, but constrained material supplies and country risks in key sourcing regions appear poised to trigger production bottlenecks and disruptions.
The newest platform in the CreditRiskMonitor® suite, SupplyChainMonitor™, identifies supplier risks and facilitates supplier diversification with vendor research, onboarding, and monitoring of 30+ million companies globally. Here’s a glimpse of the data-driven analysis of this vital component of the EV supply chain provided by SupplyChainMonitor™.
CreditRiskMonitor is a B2B financial risk analysis platform designed for credit, supply chain, and other risk managers. Our service empowers clients with industry-leading, proprietary bankruptcy models including our 96%-accurate FRISK® score for public companies and 70%-accurate PAYCE® score for private companies, and the underlying data required for efficient, effective financial risk decision-making. Public company coverage comprises more than 57,000 businesses worldwide, totaling $69.3 trillion in corporate revenue compared to global GDP of $85.9 trillion. Additionally, private company coverage includes information on millions of businesses the world over. Thousands of corporations around the world – including more than 35% of the Fortune 1000 – rely on our expertise to help them stay ahead of financial risk quickly, accurately, and cost-effectively.
Solving For Supply Shortages
As global EV production rapidly expands, automakers face supply shortages that may worsen over time. The EV battery supply chain starts with upstream miners of metals, primarily lithium, nickel, cobalt, and manganese for the cathodes of Lithium-Ion Nickel Manganese Cobalt and Nickel Cobalt Aluminum batteries. Automakers are looking to replace expensive metals, such as nickel, which have seen prices spike in recent years. They are also aiming to limit exposure to child labor and human rights abuses from mining, such as cobalt in the Democratic Republic of Congo (DRC) – currently managed by the COTECCO project – and diversify supply away from Chinese manufacturers. This final consideration may be harder than it sounds, given The Wall Street Journal’s analysis that China controls 99% of manganese refining capacity, essentially cornering this market. Additionally, high-grade graphite, used for battery anodes, could become a pricing issue due to limited supply outside China.
To gain better control of the supply chain, procurement professionals are financially upgrading and geographically diversifying their supplier bases. Some automakers are also expanding their battery technology to Lithium Ferro-Phosphate, which makes use of less expensive raw materials. LFP very well could attain the largest market share within the next decade. Tesla, Inc. (“Tesla”), Ford Motor Company, General Motors Company (“General Motors”), and Volkswagen AG, for example, are expanding to multiple battery technologies in their model portfolios. Another risk mitigation strategy employed by OEMs has been vertical integration. For example, Tesla plans to build its own lithium refinery plant, however plant construction takes time and other parts of the supply chain are still unaddressed. Therefore, supply diversity is the solution.
Regarding vendor financial risk, professionals should review each supplier tier. This review should apply to the tier 1 supplier and N-tier suppliers to identify vulnerabilities in the supply chain. Financially distressed suppliers can cause issues with supply quality, capacity, continuity, and innovation. Evaluations should especially prioritize direct, critical, and strategic relationships. Before spending time and money forming the supplier connection, procurement professionals should first determine if the direct supplier is indeed financially viable and supplier tier risks are manageable. SupplyChainMonitor™’s bankruptcy prediction models, including the FRISK® and PAYCE® scores, greatly help in automating the financial review of prospective and existing suppliers.
Another research step for your supplier tiers is assessing country risk. Frontier, emerging, and developing economies generally pose a higher risk to supply chains; however, staying informed of specific categorical risks is the most valuable. With this in mind, SupplyChainMonitor™ provides Economist Intelligence Unit country risk ratings and granularity to guide procurement decisions. Subscribers use this information to develop a supplier base in lower-risk countries and deliver better operating outcomes.
Country Risk Insight: GM Sources New Cobalt Supply
The Democratic Republic of Congo (DRC) holds the top position for discovered cobalt reserves at 3.6 million metric tons. Yet, the DRC ranks as the second riskiest country in Africa and all ten underlying category ratings classify as high risk, which includes its labor market. The second largest DRC cobalt miner, Tenke Fungurume Mining S.A., filed for Administration in February 2022 and halted export shipments for months over alleged reserves fraud, tied to its Chinese parent CMOC Group Ltd. Without dual sourcing cobalt, a cathode manufacturer could deplete its feedstock, which affects battery manufacturers and ultimately automakers.
The DRC is only one of many supply locations though, as Australia holds 1.4 million metric tons of cobalt reserves. Australia also carries one of the lowest country risk ratings worldwide. Supplier alternative Glencore PLC (“Glencore”), with a strong FRISK® score of “9”, conducts cobalt mining out of its Murrin Murrin operation in the northeastern Goldfields region of Western Australia. In 2022, Glencore signed a supply agreement with General Motors. Securing cobalt supply with a financially sound supplier in a low-risk environment will bode well for the automaker long into the future.
Supplier Tiers & Alternatives
SupplyChainMonitor™ enables subscribers to make strategic decisions by breaking down supplier tiers and particular vendors by industry, geography, size, and risk, among other criteria. Subscribers can organize their existing and prospective suppliers into unique classifications, such as supplier tier, commodity type, and other metadata.
In the charts below, the supply chain has been organized into Tier 1 battery cell and pack manufacturers, Tier 2 battery components, and Tier 3 material miners and refiners. SupplyChainMonitor™’s country risk data, based on a “0” (lowest risk)-to-“100” (highest risk) scale, can quickly identify suppliers with high risk by geography and high bankruptcy risk by FRISK® score. The FRISK® score informs subscribers of high-risk suppliers that are most likely to cause disruption risks, including some of the Chinese battery manufacturers listed below.
|Tier 1 Battery Cell & Pack Manufacturers||Country||FRISK® Score||Country Rating|
|LG Energy Solution Ltd.||South Korea||9||27|
|Panasonic Holdings Corp.||Japan||9||20|
|Contemporary Amperex Technology Co. Ltd.||China||8||48|
|SK Innovation Co. Ltd.||South Korea||8||27|
|Samsung SDI Co. Ltd.||South Korea||7||27|
|CALB Co. Ltd.||China||7||48|
|EVE Energy Co. Ltd.||China||5||48|
|Farasis Energy Gan Zhou Co. Ltd.||China||5||48|
|BYD Company Limited||China||4||48|
|Gotion High tech Co. Ltd.||China||4||48|
|Sunwoda Electronic Co. Ltd.||China||4||48|
Supply professionals can review their Tier 2 suppliers, which would include the key components of battery separators, anodes, cathodes, and electrolytes. Subscribers should seek out manufacturers with the lowest country risk and strongest financial health, e.g. Polypore International, Inc. (a subsidiary of Asahi Kasei Corporation), JFE Chemical Corporation (a subsidiary of JFE Holdings, Inc.), or BASF SE.
|Tier 2 Battery Component Manufacturers||Country||Component||FRISK® Score||Country Rating|
|Asahi Kasei Corporation||Japan||Separators||10||20|
|Toray Industries, Inc.||Japan||Separators||7||20|
|SK Innovation Co. Ltd.||South Korea||Separators||8||27|
|Polypore International, Inc.||U.S.A.||Separators||10*||25|
|Sumitomo Electric Industries, Ltd.||Japan||Separators||10||20|
|Showa Denko K.K.||Japan||Anode||5||20|
|Ningbo Shanshan Co. Ltd.||China||Anode, Cathode, Electrolyte||6||48|
|JFE Chemical Corporation||Japan||Anode||9*||20|
|Mitsubishi Chemical Group Corporation||Japan||Anode, Electrolyte||5||20|
|Shenzhen Capchem Technology Co. Ltd.||China||Electrolyte||7||48|
|Dongwha Enterprise Co. Ltd.||South Korea||Electrolyte||5||27|
|GS Yuasa Corporation||Japan||Electrolyte||6||20|
|Sumitomo Metal Mining Co. Ltd.||Japan||Cathode||9||20|
|LG Chem Ltd.||South Korea||Cathode||10||27|
Although battery commodities are in short supply and refining is often confined to China, subscribers can quickly identify reliable alternatives. Certain financially sound operators, such as Vale SA and Glencore, have fully integrated operations to support both the mining and processing of cobalt and nickel.
|Tier 3 Material Miners & Refiners||Country||Commodity||FRISK® Score||Country Rating|
|Sociedad Quimica y Minera de Chile S.A.||Chile||Lithium||10||29|
|Tianqi Lithium Corporation||China||Lithium||7||48|
|CMOC Group Ltd.||China||Cobalt||6||48|
|Sherritt International Corporation||Canada||Cobalt, Nickel||2||20|
|Vale SA||Brazil||Cobalt, Nickel||9||51|
|Jinchuan Group International||China||Cobalt, Nickel||6||48|
|Glencore PLC||Switzerland||Cobalt, Nickel||9||11|
|Zhejiang Huayou Cobalt Co. Ltd.||China||Cobalt, Nickel||5||48|
|Jervois Global Ltd.||Finland||Cobalt, Nickel||5||17|
|Umicore SA||Belgium||Cobalt, Nickel||6||27|
|BHP Group Ltd.||Australia||Nickel||10||15|
|Anglo American plc||U.K.||Nickel, Manganese||9||21|
|South Manganese Investment Ltd.||Hong Kong||Manganese||5||48|
|Element 25 Ltd.||Australia||Manganese||7||15|
|Syrah Resources Ltd.||Australia||Graphite||7||15|
|Northern Graphite Corporation||Canada||Graphite||5||20|
|China Graphite Group Ltd.||China||Graphite||9||48|
The evaluation of country and financial risks throughout supplier tiers helps mitigate risk related to bottlenecks, disruptions, and reputation. Procurement professionals can not only identify their weakest links but also restructure their supply chain to improve operating results and achieve sustainable growth.
SupplyChainMonitor™ provides vendor risk assessment and the uncovering of growth opportunities in complex supply chains. EV batteries are just one example. The platform provides detailed supply chain segmentation, research, and analytics that will enhance your workflows so you can develop a more durable and resilient supplier base. To learn more, contact SupplyChainMonitor today for a demonstration and trial of the service.