Some have described the global shortage of semiconductors that has shut down automotive manufacturing and will cost automakers and suppliers billions of dollars as nothing more than a classic supply chain management problem. More precisely, however, what the current shortage, COVID-19 and prior disruptions such as the 2011 tsunami in Japan continue to expose are significant vulnerabilities in a global supply chain that continues to expand. With that growth, it has become more concentrated and more competitive as multiple industries vie for similar materials and components.
As unpredictable and disruptive as all these events were, they are likely to continue as the automotive industry pushes toward electrification and navigates significant transformation of the value chain that could magnify current vulnerabilities and expose new ones. The question becomes whether the auto industry is anticipating future supply disruptions and how it is preparing to mitigate future risk as automakers, suppliers and service providers create an end-to-end value chain capable of powering a fleet of electric vehicles. FTI Consulting’s automotive experts estimate that by 2025, EVs will reach sales of 18 million units globally.
In this second year of the Crisis as a Catalyst for Change series, we delve into the emerging EV value chain and explore a number of important questions to consider as demand for EVs accelerates and the industry transforms the global supply chain from one designed to build and service vehicles powered by internal-combustion engines (ICEs) to one designed to also build and service EVs. Questions such as:
- How much value is embedded in the EV supply chain, and how much is it expected to grow?
- Where are the opportunities to create an acceptable return on investment?
- With so many players, is restructuring likely, and what are the implications and risks?
- How are the EV and ICE value chains different, and what are the potential risks and vulnerabilities in the EV value chain?
- How are automotive executives thinking about and building their EV supply chains?
- What can companies do now to mitigate potential disruption of the EV supply chain?
In this first article, we set the stage for the series by outlining how much value the future EV supply chain is expected to generate by 2025 and begin to make the case that falling down on supply chain management and risk mitigation efforts could be a costly mistake.
The massive and rapidly accelerating growth of EVs—driven by investment from the public sector, traditional auto companies and well-funded emerging players—adds up to an electrified value chain that will witness exceptional growth in the next five years.
By 2025, we forecast the global end-to-end value chain for EVs alone will amount to $1 trillion to $1.2 trillion. That includes growth in the total number of units, the number of batteries, the components needed for EVs, and charging and service providers—a segment itself that’s forecast to total $300 billion to $350 billion in value for the EV ecosystem by 2025.
Upstream, the availability of batteries may be the critical component affecting the scaling of EVs. Investment, integration and diversification will be driven by efforts to mitigate bottlenecks in the supply chain as well as offset constraints in supply. This is particularly true of scarce materials such as lithium, cobalt and nickel, where demand is estimated to outstrip supply by 2025 (Figure 1).
Among traditional suppliers and existing and emerging automakers, our analysis estimates the global market size for EV-related components to grow from $99 billion in 2020 to $459 billion by 2025, a compounded annual growth rate of 36 percent. This will be a key driver, but so will improvements in the overall component cost for EVs due to declining battery costs, estimated to drop from $32K in 2020 to $25.5K by 2025.
And downstream, investment in charging infrastructure is expected to grow nearly 26 percent annually through 2030 and exceed $150 billion in value.1 Additionally, demand for maintenance and repair will likely encourage investment from government, traditional auto companies and well-capitalized new players.
At that scale, companies throughout the electrification ecosystem should make strategic investments now in procurement, strategic sourcing, supply chain management and risk mitigation. Still, given the size and scope of expansion in EVs, questions remain regarding where to invest to create the greatest returns.
Upstream, batteries will be a primary driver of value in the push toward EVs. We believe value will likely be driven by two levers: manufacturing and total cost of ownership (TCO).
On the manufacturing side, the price of lithium, cobalt and other raw materials will increase as demand outstrips supply and global competition for scarce materials intensifies. Investments are already underway and will continue as industry works to bring more battery manufacturing online and alternative battery technologies to market. Mining activities to increase output will also increase investments. Still, the reliance on global sources for those raw materials—often sources of geopolitical debate and possible areas of supply chain risk and disruption—may cause automakers and suppliers to vertically integrate their EV supply chains to reduce risk and leverage scale to reduce cost. Some manufacturers may also continue investing in alternative powertrain technologies (e.g., hydrogen) and EV chemistry.
Battery TCO will continue to decline as capacity increases, additional sources of raw materials are identified and other alternative powertrain technologies emerge. Value will be driven by investments in those efforts as well as higher margins created by lower cost per kilowatt-hour.
Midstream, among component suppliers and automakers, FTI’s automotive team forecasts EV components to capture 28 percent of the light-vehicle component market by 2025. Investment and value will be created as many of the trends we see today continue as more EVs are produced and sold. These trends include consolidation and acquisition, joint ventures and strategic partnerships as traditional megasuppliers seek to compete in components common to both EVs and ICE vehicles. Additional value will be created as partnerships between battery manufacturers, suppliers and automakers develop to reduce risk and cost and create scenarios where automakers buy versus create new and emerging technology. Within the suite of EV components, we forecast double-digit growth through 2025 in batteries (27 percent), power electronics (36 percent), electric motors and transmissions (38 percent) and EV electrical architecture (25 percent). And while costs for ICE components are relatively low, our automotive team’s analysis shows that costs for EV powertrain components will continue to decline and be lower than ICE components by 2030, signaling future stagnation among traditional ICE powertrain suppliers.
Downstream, we forecast explosive growth in services surrounding both passenger and commercial EV fleets. Charging will be a key driver of value and growth as investments in infrastructure (charging stations, power grids, etc.) and services such as battery replacement and renewal gain speed. Who the winners and losers may be is still unclear, given the potential for government investment and incentives, a large and fragmented field of operators and service providers from various industries, and continued uncertainty about the adoption of EVs.
The push toward EVs is creating opportunities to generate value while also creating potential for risk and supply chain disruption. Executives working in this space need to balance market dynamics that often accompany massive transformations—such as the transition from vehicles powered by gasoline to EVs—while not losing sight of core businesses that generate and create value today. How are executives thinking about those dynamics and preparing to maintain resilient supply lines surrounding internal combustion while building and maintaining EV supply lines? In our next article, we’ll reveal the findings of a survey of Automotive News subscribers. We’ll close the series with recommendations on supply chain management in an electrified future.