Auto chiefs warn of supply chain threat to electric car rollout

The world’s largest automakers have warned of supply chain disruptions and rising raw material prices threatening the spread of electric cars, even as demand for battery-powered models vastly exceeds manufacturers’ current production capacities.

Speaking at the Eighth Automotive Future Summit in the Financial Times this week, Tesla boss Elon Musk questioned his company’s ability to reach its goal — set just months ago — of delivering 20 million electric vehicles a year by the end of the decade. He described it as “an ambition, not a promise.”

“We may stumble and not reach that goal,” Musk, an unusually conservative, said at the conference. “There are some raw material limitations that we expect to appear, in lithium production, probably in about three years, and in cathode production,” he added.

Several other industry leaders echoed Musk’s comments at the annual event, in contrast to previous summits where CEOs announced more ambitious goals for electric vehicles.

In 2021, even as the semiconductor shortage showed few signs of abating, Mercedes-Benz chief Ola Kallenius told the audience that his company would be doing “faster” when it came to phasing out combustion engine models and building electric alternatives.

But the tone at the top this week has been noticeably more conservative. No senior executive has announced higher targets for electric vehicle sales or battery production. Tesla’s closest rival, Volkswagen, which has long aimed to outpace its rival in electric car sales by 2025, has played down the prospects of achieving that goal, calling it “too narrow”.

“I think a lot of people now are overly optimistic,” said Volkswagen CEO Herbert Diess, referring to the rollout of electric cars around the world.

Speaking from the back seat of Volkswagen’s latest electric model, an emissions-free version of the 1960s camper van, he added: “We need power, we need freight networks, we need infrastructure, sure, we need cars, but we also need to batteries and raw materials.”

Dies said industry analysts did not take “the amount of effort that would have to go into making this change happen seriously enough”.

Warnings from the two largest electric car producers came as consumer appetite for battery-powered vehicles continued to exceed industry expectations.

After Volkswagen, which plans to sell nearly 700,000 electric cars in 2022, revealed it had run out of battery models in the US and Europe for the rest of the year, Mercedes-Benz’s Kallenius told Summit that “it was pretty much true for us as we will”.

Tesla’s Musk said he had not considered “anything about demand generation and a lot about production, engineering and supply chain,” adding that he wouldn’t rule out buying a mining company to secure the raw materials needed to ramp up electric vehicle manufacturing.

Ongoing bottlenecks in the supply of key battery raw materials have tempered analysts’ expectations for the electric car industry as a whole.

Researchers at Wells Fargo who this week examined raw material prices for components in the Tesla Model Y found several “surprises” that challenge the idea of ​​the impending [battery electric vehicle] adoption”.

Tesla President Elon Musk gives an interview to FT’s Future of the Car Summit this week © Em Fitzgerald / FT

“Rising costs of raw materials for batteries have led to delays [battery electric vehicle] Cost parity [internal combustion engines] At least a decade ago,” the bank warned, referring to the moment when zero-emissions cars become as cheap as gasoline or diesel.

As a result, Wells Fargo analysts cut GM and Ford’s ratings, as “US manufacturers are likely to have to sell money-losing compliance.” [battery electric vehicles]’, to meet more stringent regulatory targets.

Their assessment was matched by Renault CEO Luca de Meo, who told the Financial Times conference that supply chain crises mean “the game has changed” and that automakers “have to play by new rules,” leaving them dependent on energy efforts. and mining companies.

He warned that the French group may not achieve cost parity for mid-range models by 2025, and that this could dampen demand for electric cars. We know that purchasing power [of] People in many regions of the world will not necessarily increase,” de Meo said.

At the same time, generous subsidies for electric car buyers in China will be removed by the end of the year, making it difficult for low-income people to switch.

Stellantis, which owns budget brands like Dacia, has warned that batteries will become scarce in just two or three years, complicating the rollout of affordable electric vehicles.

“The speed with which everyone is now building battery manufacturing capabilities may be on edge to be able to support the rapidly changing markets in which we operate,” said Carlos Tavares, President of Stellantis.

“We are not approaching this shift with a 360-degree strategic approach,” he added. “Everyone is going to put EVs in the market. So what’s next? Where is the clean energy? Where is the charging infrastructure? Where are the raw materials?”

To help with the commodity crisis, Callenius called on Mercedes Europe to imitate the raw material procurement strategies implemented by China and the United States and develop “more bilateral trade agreements . . . perhaps beyond the three traditional regions”.

He said the EU should consider doing deals with mineral-rich countries such as Australia and India as well as South American countries, creating closer ties with “economies that might have some of those raw materials we need for electricity”.

But most executives agreed that the industry’s problems would not go away quickly.

“[This is] Nissan Chief Operating Officer Ashwani Gupta said:

“For me today, the supply chain crisis is the new normal.”

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