Keeping Automotive OEMs and Battery Suppliers Competitive in Disruptive Times
Electric vehicles (EVs) are disrupting the automotive industry. Carmakers are focused on competitive manufacturing costs - whilst faced with sourcing uncertainties – but for CHEP, the global leader in sustainable supply chain solutions, important cost savings are for the picking in the supply chain
Morgan Stanley recently referred to the global battery economy as the ‘new oil’. Cathy Wood, Head of Ark Investments went on to bullishly predict that Tesla could take a potential 25% share of the total automotive market in five years.
But everyone wants to drill that new reserve.
Supported by the favorable wind of governments worldwide seeing personal vehicles as the quickest route to decarbonization, traditional automotive Original Equipment Manufacturers (OEMS) are creating evermore ambitious electrification goals for their fleets of new cars.
Everyone is focused on competitive battery pricing, all eyes on the magical $100 per KWh battery price that would align the cost of electric vehicles (EVs) with internal combustion engine (ICE) vehicles. BloombergNEF’s annual survey put that average price at $137 per KWh in 2020, but with the caveat of incertitude that prices are not declining in 2021 to the same degree as in recent years because of the rising price of key raw materials.
Can new battery technologies, the race to source more raw materials and the mass construction of Gigafactories allow for more cost efficiencies? Probably. We just don’t know exactly how and when.
Ultimately competitivity in the EV market is not just about manufacturing costs
There are other costs associated to EV batteries and, as manufacturers ramp up their production of both batteries and electric vehicles faced with these uncertainties, the most successful among them are already considering those other areas of cost optimization.
Morgan Stanley’s ‘new oil’ is reshaping supply chains that have been in place for longer than anyone can remember. With the average car containing 30,000 parts, the existing automotive supply chain is complex and global in nature and OEMs have spent years maturing it. It would be wrong to think - with a conventional ICE powertrain containing over 2,000 moving parts and a typical EV just 20 – that supply chain got simpler.
The complexities lie elsewhere.
The transportation of batteries can be a headache
Lithium-ion batteries are by far the most widely used batteries in EVs. If they are in anyway damaged, mishandled or subjected to too much heat, they can leak, release toxic gases, self-ignite or even explode.
Categorized as Class 9 Dangerous Goods (Packaging Group II), strict safety regulations are therefore in place to ensure that EV batteries follow a specific transport and packaging process. That packaging must be UN-certified and meet far higher requirements than those in place for the transportation of standard car parts.
“It’s a new and somewhat unexpected cost,” explains Murray Gilder, Vice-President of CHEP Automotive. “External experts have confirmed to us that one-way packaging for a full battery pack can cost between $300-500 – that’s 7% of total battery cost.”
With EV battery technology still facing teething issues, one-way packaging is not just expensive, but also short-sighted. GM, Hyundai and Ford all made news this year when they had to recall defective battery packs. Involving 132,500 vehicles in total, that represents an estimated combined cost of $2.2bn dollars.
Recalls aren’t uncommon in the automotive industry, especially not for new technologies, but they will continue to hit OEM balance sheets whilst these problems are ironed out. That’s why everyone needs to be looking at cost cutting elsewhere. Those savings can be found in optimized transportation solutions. Moreover, the demand for battery transportation is not simply at the initial point of sale.
Understanding the automotive supply chain of the future
Tomorrow is not just about understanding EV technology, it is about learning to navigate this new supply chain in a competitive and optimized way. But not only that. If all eyes are on the automotive industry to lead the decarbonization charge, whatever new supply chains methods are developed need to be first and foremost sustainable.
This is where partners like CHEP come in. CHEP has been at the heart of thousands of automotive and industrial supply chains since 1975. Whilst automotive companies navigate new EV technologies, CHEP is helping them navigate the new supply chain that accompanies this unprecedented disruption.
CHEP’s Battery in Focus Expert Group welcomes leaders from all parts of the global supply chain industry to discuss how to build a safe, efficient – and importantly sustainable - battery supply chain. Eyes aren’t just on personal transport to lead the charge in decarbonization, but on all forms of transportation. CHEP already manages the world’s largest pool of reusable pallets and containers and promotes the ‘share and reuse’ of these platforms.
Evolving re-usable packaging to meet evolving needs
By aligning its offer to meet the evolving needs of the automotive industry, CHEP’s Eurobin and IsoBin products have been adapted to meet requirements and contain over-fitting lids, strapping channels, customizable inserts and even the option to add trackers to monitor both the location and condition of the contents. This reusable container packaging for EV batteries offers first and foremost more protection than standard cardboard alternatives. More shielding from the elements, less stacking damage and less overall handling allows for less damage and loss in transit, and the cost that incurs.
Secondly, designing cells and modules around a UN-certified reusable and standardized container offers a higher packing density, greatly optimizing sea container packing. A second cost saving.
Last but not least, when it comes to the EV battery market, we are just at the tip of the iceberg. It is expected to grow at a compound annual growth rate of 26% from 2021 to 2028, reaching $175.11 billion by 2028 (Meticulous Research, 2021). That’s a lot of batteries to transport.
“Successful battery suppliers and automotive OEMs are already partnering with supply chain specialists and developing reusable packing to ensure availability when the demand for batteries increases,” concludes Murray Gilder. “Most importantly, they are reducing overall costs and hitting sustainability targets by tackling that ‘hidden’ cost and complexity of battery transportation.”