China Restricts Supply of Components to Top U.S. Drone Maker

U.S. Automakers, Forced Labor Concerns, and the Path to an Affordable Electrified Future

November 15, 2023

Event

How can automakers innovate to keep the cost of electric vehicles (EVs) down while creating supply chain resilience and stability?

Exiger President of Supply Chain Transformation Trevor Stansbury shared his perspective at Reuters Events: Automotive USA 2023, participating in the panel “The Road to an Affordable Electrified Future.” Read on for insights into automotive supply chain challenges and opportunities for EVs.

The U.S. Automotive Transition to Electric Vehicles
Competition with Chin ese EVs
Financial Barriers in EV Adoption
Beyond Rebates: The Need for Comprehensive Solutions
Addressing Forced Labor Concerns in the Automotive Supply Chain
The Role of Technology in the Automotive Supply Chain

The U.S. Automotive Transition to Electric Vehicles (EVs)

As the global automotive landscape rapidly shifts towards electric vehicles (EVs), the U.S. automotive industry faces a critical transition period. It’s not just about embracing new technologies but also navigating complex policy, infrastructure, geopolitical, economic and ethical landscapes. The industry’s journey into the EV era is fraught with the competitive pressure of low-cost Chinese EVs, significant material availability and price volatility barriers, and intricate supply chain issues, particularly concerning ethical and sustainable sourcing practices.

We’ll explore these challenges and how the U.S. automotive industry can navigate this transformative period, with a special focus on the role of innovative AI technology to overcome these hurdles. That includes a review of the industry’s current stance, the impacts of international competition, the financial considerations in adopting EVs and the crucial aspect of maintaining ethical supply chains in this quickly evolving market.

Competition with Chinese EVs

China is now the world’s largest exporter of inexpensive electric vehicles, significantly impacting the U.S. automotive industry. This dominance is fueled by a combination of factors, including substantial government subsidies, ownership or favored access to mines and processing facilities, trade protections and a low-cost manufacturing infrastructure. Chinese manufacturers have succeeded in producing high-quality EVs at lower costs, making them highly competitive in the global market.

To counter this threat to U.S. automakers and to prevent cheap Chinese EVs from flooding U.S. markets, the Chairman of the House Select Committee on Strategic Competition has sent a letter to the U.S. Trade Representative urging a new Section 301 investigation. The investigation seeks to assess the impact of Chinese trade practices on the U.S. automotive sector and explore potential remedies, including additional tariffs.

This strategic approach reflects the U.S. effort to create a more level playing field for domestic automakers, ensuring they can compete effectively in the evolving EV landscape. The outcome of these deliberations will significantly influence the U.S. automotive industry’s ability to adapt and thrive in the global shift toward electrification.

Financial Barriers in EV Adoption

A major hurdle in the widespread adoption of EVs in the United States is the inadequate electrification infrastructure and a cost disparity compared to internal combustion vehicles (ICVs). The materials required for manufacturing EVs are significantly more expensive, with costs approximately 125% higher than those for ICVs. This price gap results in an average cost difference of $6,000 to $10,000 between EVs and traditional vehicles, posing a substantial barrier for consumers and manufacturers alike.

To mitigate this financial barrier, the U.S. government will introduce a $7,500 EV tax rebate for vehicles that meet certain domestic content requirements. This initiative is part of a broader effort to make EVs more accessible to consumers, by reducing the upfront cost of an electric vehicle while simultaneously incentivizing sourcing of battery components and materials from U.S. suppliers. The rebate is designed to level the playing field between EVs and ICVs, making electric options more financially attractive to potential buyers.

Beyond Rebates: The Need for Comprehensive Solutions

However, the impact of the rebate is just one piece of the puzzle. The U.S. automotive industry recognizes that overcoming the cost barrier requires more than just financial incentives. It involves a multi-pronged approach that includes continuous technological advancements to reduce production costs, public and private collaboration to expand the electrification infrastructure, strategic partnerships between OEMs and N-tier suppliers, and further policy support to enhance the economic viability of EVs. The industry is exploring ways to decrease battery costs, improve efficiency, and enhance the overall affordability of EVs to ensure their competitiveness in the market.

While the EV tax rebate is a significant step towards making electric vehicles more accessible, an affordable electrified future will require at least three things, said Stansbury:

Accelerated and more streamlined investment in the permitting, mining, processing and production of battery parts and materials in the U.S. or from non-adversarial sources.
Massive upgrades to EV infrastructure and diversification of power sources.
Greater collaboration and supply chain orchestration between OEMs and their N-tier suppliers, particularly when it comes to procuring raw materials.

Addressing Forced Labor Concerns in the Automotive Supply Chain

About 76% of EV battery manufacturing is in China, while only 7% is in the U.S. A critical issue confronting the U.S. automotive industry in its transition to EVs is ethical sourcing, particularly regarding the use of forced labor in supply chains. The U.S. government has taken a firm stance against the import of materials suspected of being produced through forced labor, especially from the Xinjiang region of China. This stance is encapsulated in the enforcement of the Uyghur Forced Labor Prevention Act (UFLPA), which mandates strict scrutiny and the impounding of imported parts and materials linked to these unethical practices.

For U.S. automakers, this presents a complex challenge. The industry relies heavily on materials like lithium, cobalt, cotton and rare earth metals, often sourced from regions with reported forced labor issues, notably China and the Democratic Republic of the Congo. Ensuring that these essential materials are obtained ethically requires a deep and transparent understanding of the supply chain. The crackdown on forced labor has led to increased detainments and scrutiny of imports, disrupting supply chains and prompting automakers to reassess their sourcing strategies.

Ethical sourcing represents a significant challenge for the U.S. automotive industry as it moves towards electrification. Stamping out forced labor and navigating other regulatory and ESG concerns requires robust mechanisms to track and verify the origin of materials. Automakers are increasingly focusing on supply chain transparency, seeking to ensure that their products are not only high-quality and efficient but also ethically sourced. This shift towards ethical sourcing is not just a compliance measure but also a reflection of growing consumer awareness and demand for ethically produced goods. Addressing these concerns requires a concerted effort towards transparency, compliance with international labor standards, and a commitment to ethical business practices. What more automakers need to recognize is “that it pays to do good,” Stansbury said during the Automotive USA 2023 panel.

“To move the needle on affordability, automotive OEMs need to do a better job of collaborating with their suppliers, below the Tier 1 level. This is especially true when it comes to lowering material-input costs, where metals, plastics, chemicals and electronics can constitute as much as 30-60% of total vehicle cost.”
– Trevor Stansbury, Exiger President of Supply Chain Transformation

The Role of Technology in the Automotive Supply Chain

“You can’t control what you can’t see,” said Stansbury. One consequence of OEMs outsourcing parts over the last 20 years is that they have limited visibility below their Tier 1 manufacturer, where most of the cost, complexity and risk resides.

“To move the needle on affordability, automotive OEMs need to do a better job of collaborating with their suppliers, below the Tier 1 level. This is especially true when it comes to lowering material-input costs, where metals, plastics, chemicals and electronics can constitute as much as 30-60% of total vehicle cost,” said Stansbury. “That’s something that is within their control, but they need to get better at leveraging technology to map supply chains and orchestrate interactions across that extended enterprise.”

Exiger plays a pivotal role in supporting supply chain management and visibility for auto manufacturers with the 1Exiger platform. It illuminates opaque supply networks to enable collaboration with suppliers on the purchase of vital parts and materials – lowering cost and ensuring they come from from trusted and sustainable sources. For example, materials such as cobalt, lithium, germanium and gallium are essential ingredients in the batteries and electronic components that fuel the EV industry. The platform ensures compliance with various regulations and enables customers to manage costs of these materials effectively and respond swiftly to global supply chain disruptions.

“It’s exciting to see the way the 1Exiger platform is contributing to an affordable electrified future by connecting the dots across multi-tier supply chains, de-risking sourcing decisions for U.S. automakers, and enabling the sourcing of vital EV materials from competitive, trusted and sustainable sources,” said Stansbury.

How 1Exiger supports OEMs:

Track and trace raw materials: enables tracking of materials like metals, plastics and electronics by vehicle or program code, enhancing transparency and traceability.
USMCA and UFLPA compliance evaluation: assists in evaluating compliance with the United States-Mexico-Canada Agreement (USMCA), ensuring 70% of steel originates from North America, and that nth-tier suppliers are compliant with UFLPA regulations.
Strategic sourcing agreements management: manages “directed buy,” consignment or “buy-resell” agreements used in centralized purchasing, leading to significant cost reductions in raw materials and component parts, up to 25%, and as much as a 40% improvement in lead times and cycle times.
Geo-mapping and real-time alerting: provides geo-mapping capabilities and near-real-time alerts for risk associated with man-made or natural disasters, enhancing proactive risk management.
Supplier diversification and forecasting identifies alternative parts or suppliers and enables supply chain modeling and simulation.
Item-level supply chain illumination: enables automakers to identify and verify make-buy relationships and specific order form preferences and lead times across an extended enterprise.
Part family classification and smart RFQs: allows for efficient part family classification, matching of part attributes with supplier capabilities and streamlining/standardization of the procurement process.