Today, many OEMs maintain a supplier base close to their assembly lines, especially to reduce lead times and inventory by using just-in-time or sequence delivery. But currently most lithium-ion cell production capacity is located in Asia. Moreover, cell production capacity is also expected to expand dramatically in Asia over the next five years. For example, CATL, a China based technology company which develops and manufactures lithium ion batteries for cars and controls a large share of total automotive battery production capacity, plans to increase its capacity six-fold to 50 Gigawatt-hours (GWhs) by 2020, surpassing the proposed 35 GWhs goal of Tesla’s gigafactory. Just for comparison, a single GWh provides power for 40,000 electric cars to each travel 100 kilometers.
Batteries for BEVs are large, heavy, highly sensitive to environmental influences, and classified as dangerous goods, therefore attracting strict safety regulations and incurring high logistics costs. Because of this, it is probable that BEV factories and battery factories will be co-located. However, for now, it remains unclear “where” these supply chains will converge.
On the one hand, Asia has the highest expected growth in BEV sales as well as in lithium-ion battery production capacity, especially in China. This makes a clear business case for setting up BEV factories in Asia. In addition, the Chinese government is enacting stringent regulations to ensure rapid market growth – the country is targeting plug-in hybrids and BEV to amount to 20% of total car sales in 2025.
On the other hand, Europe and North America have higher average incomes than Asian countries. Hence, compared with Asia, more consumers will be able to afford BEVs in Europe and North America already today as BEVs are (still) more expensive than conventional cars. Moreover, many large OEMs have set up their first BEV factories in Europe, often in proximity to their headquarters. Also, strict environmental regulation enacted by the EU will further accelerate the uptake of BEVs in Europe, especially given the recent U.S. withdrawal from the Paris climate accord. These factors warrant establishing battery factories in this region. For example, LG Chem has just built a battery factory in Poland, with production currently ramping up.
Considering the current locations of BEV assembly lines and battery factories, automotive and battery supply chains may likely convergence on a regional level – leading to new battery factories in Europe and new BEV assembly lines in Asia. This will change automotive supply chains and certainly impact the structure of inbound flows and outbound networks, warehouse locations, and inventory strategies.