Evolving global supply chain risks must raise 'red flag' for EV manufacturers
As the demand for raw materials grows over the next 15 years, EV manufacturers must prepare for greater supply chain risks or face brand damage and regulatory penalties from emerging legislation.
That’s according to a new paper from strategic consulting firm Verisk Maplecroft, which has examined the global risk landscape for a host of materials going into EV production.
More than 30,000 individual components are needed to manufacture a standard EV, which makes for an extremely complex supply chain. Raw materials such as aluminium, cobalt and rubber are associated with environmental and social risks such as labour and human rights violations and environmental degradation across developing countries.
Verisk Maplecroft warns that increased exposure to these issues will be inevitable as the industry’s growth accelerates. Manufacturers are therefore being urged to respond proactively or risk tarnishing the sector’s sustainable and environmentally responsible status.
The report’s lead author Stefan Sabo-Walsh said: “In order for EV producers to maintain their clean, green image, they will need to ensure that every individual component required for the manufacture of their vehicles is ethically sourced and as untarnished as a new vehicle rolling off the production line.
“As the sector promotes sustainability and an eco-friendly image, the potential for being linked to extremely damaging ESG incidents should be a major concern.”
The production of lithium-ion batteries, commonly used for EVs, requires the use of materials such as cobalt, copper, nickel and bauxite, which are often sourced from a number of high-risk countries.
For instance, concerns exist around cobalt production in DR Congo - leading world producer of the metal – where a multitude of labour and human rights violations, including the exploitation of up to 40,000 children, have been reported in connection with the industry.
Elsewhere, lithium and copper development have spurred civil unrest and impacted the rights of indigenous people in countries across Latin America, while environmental degradation due to nickel extraction has led to the closure of 23 mines in the Philippines.
Verisk Maplecroft says these developments should provide an “instant red flag” to EV manufacturers. Transparent methods to identify the production level risks in the lower tiers of the supply chain are critical, the consultancy insists, but to do this businesses will need to understand which products are used in their products as well as each material’s unique journey.
This task is complicated by the complexity of each supply chain. Before reaching the manufacturing stage, raw materials can navigate an elaborate network of suppliers that can see the smelting together of metals extracted from legitimate mining operations with those from unregulated sites.
The report notes that a lithium-ion battery manufacturer operating in China can be exposed to a whole range of risks: from widespread child labour in DR Congo, corruption associated with the overland transport to east African ports, to potential natural hazard events capable of disrupting smelting in Indonesia, This is before reaching China’s own extractive sector, which suffers from labour violations, environmental degradation, land grabs and corruption.
A confusing global political landscape complicates matters further, Verisk Maplecroft notes, with government interference cited in the extractive sectors in both Russia and South Africa. On the other end of the spectrum, EV producers are sourcing raw materials from an increasing range of producing countries where regulations are often either non-existing or poorly enforced.