If you’re not taking supply chain risk seriously, let this example serve as a blunt reminder that it’s time to start.
Auto manufacturers across the world will likely face significant disruption due to a supply shortage of electric vehicle batteries. Eight of the 11 main countries where cobalt and lithium – the raw materials used for the batteries – come from are at ‘high or very high risk of disruption,’ according to new research from JLT Specialty, a specialist broker and risk consultant.
The countries, namely Democratic Republic of Congo (DRC), Guinea, Russia, and the Philippines, are vulnerable to bouts of political instability, natural catastrophes, and supply and demand pressures.
The consequences of disruption within those countries will be dire for automakers, who rely heavily on a handful of sources for the essential raw materials. Exports from the DRC, for example, constitute over 80% of cobalt produced globally. It has suffered from significant political instability, exacerbated by the introduction of a new mining code that will effectively double the government’s authority in mining projects – along with the potential for political interference.
In the past year, the price of raw materials used in elective vehicle batteries has skyrocketed. Copper prices have risen by 39%, while cobalt climbed over 127%, according to Business Monitor International (BMI). Those prices are expected to continue to be high as demand for electric vehicles grows and manufacturers of laptops and mobile phones contend for the same raw materials.
Nickel, another key component of the batteries, is a major export for the Philippines, where natural disasters like flooding, landslides, earthquakes and typhoons are an omnipresent threat to operations.
Risk managers from manufacturers requiring these raw materials should be looking into their supply chain operations, but the warning applies to businesses across industries as well.
“The fact that the auto industry, along with society more generally, continues to speed towards an electric vehicle future is not without its dangers,” says Matt Grimwade, head of automotive at JLT Specialty. “The overwhelming reliance on raw materials from high-risk regions for electric vehicle battery production represents a major threat of disruption to supply and poses a business-critical risk to manufacturers. The risk is real and growing, and it is imperative that automakers take the necessary steps to mitigate and protect from a potential supply chain catastrophe.”