Matt GrimwadeRecent research from JLT Specialty revealed eight out of the 11 key countries which supply the main raw materials used in EV batteries, such as cobalt and lithium, are in territories designated as having a high or very high risk of disruption.

The intense demand for sourcing materials like cobalt comes not just from automotive manufacturers but also from technology firms which use it to supply the batteries in mobile phones and laptops. As vehicle makers vie to stay ahead of the competition and more governments impose EV targets, ensuring the supply chain of commodities for EV batteries – and managing the risk – is of paramount importance to the future of the industry.

True visibility along the supply chain and traceability of raw materials back to their source is a major stumbling block for vehicle makers. The fact that there are only 11 principal producer countries for the raw materials of EV batteries speaks volumes about the lack of supply diversity. Looking at this issue more closely, eight of those countries are considered at high risk of disruption from political instability and natural catastrophes as well as supply and demand pressures. Exacerbating the issue further, 80% of the world’s global cobalt exports are sourced from the Democratic Republic of Congo (DRC), which represents a high risk to automotive supply chains.

In addition, the DRC has ratified a new mining code into law which doubles the government’s stake in new mining projects from 5% to 10%. Furthermore, the government of DRC is to renegotiate all contracts with international miners, with the guaranteed contract stability period halved to five years. If contract terms become less favourable or licences are not renewed, this could elevate legal and operational risks. Even those with long-term supply contracts are not immune, and extensive and opaque supply chains make mitigating disruption no small task.

Putting the brakes on lossesOverall, getting to grips with risks in the supply chain requires a three-stage approach to the problem, for both vehicle makers and their suppliers. The first step is to identify opportunities for investment, trade transaction or physical asset movement before commitments are made, in order to minimise uncertainty. Due diligence on the foreign country must be undertaken for the reasons of credit risk, the legal and regulatory environment, restraints on freedom of movement and an independent security report.

The next step is to identify the risks within the supply chain and develop a plan to mitigate against them. Alternative sources of supply should be identified in case of disruption in the supply chain. However, this can be a major challenge as vehicle makers have minimal visibility beyond tier one suppliers, and often do not have full visibility of even their tier one suppliers.

The third step to help vehicle makers plan against supply chain disruption in sourcing raw materials for batteries in EV vehicles is to harness the power of data. It is all about quality data, and greater transparency along the supply chain can help set companies apart from their competitors. Better use of the data vehicle makers already have, or innovative partnerships with specialist data analytics experts, can help to map their global supply chains, monitor potential failure points and improve resiliency.

A fully-charged futureGiven that 3% of new cars sold in the UK in 2017 were electric or hybrid, according to the Society of Motor Manufacturers & Traders, and the target projected by the Committee for Climate Change for 60% of new cars sold by 2030 to be electric, the race towards an EV future is underway in earnest.

In Speeding up European Electro-Mobility, Swedish academics projected the need for battery production capacity in Europe. If the EU’s fleet were to be half battery-electric, half plug-in hybrids by 2030, seven giga-plants of the size of Tesla’s Arizona factory would be needed. It will take five-seven years to commission a battery plant, so vehicle makers need to start putting plans in place.

Given this future, the reality is that the pressures facing the supply chain for raw material for EV batteries are almost certain to worsen. Only by identifying and analysing threats to their supply chain can companies take the steps necessary to avoid the risks and minimise the impact of an EV battery production crisis. Without doing so, their supply chains could come screeching to a halt.

Matt Grimwade is a senior partner and head of automotive at global insurance broker JLT Speciality