Supply Chain & Logistics

By Olaf Hermanni, Managing Director DHL Consulting

Falco Jaekel, Project Manager DHL Consulting

Benjamin Jehl, DHL CSI Strategy & Business Development, EMEA Region

December 19, 2017

The structure of the automotive industry is changing fast as new car components and new industry players make their debut in the sector, developments explained in the previous article in this three-part series. These changes are reshaping automotive supply chains and, at the same time, gradually fusing them with the electronics supply chain, specifically with lithium-ion battery production and distribution. Hence, you may need to rethink the best locations for automotive manufacturing.


For OEMs (original equipment manufacturers) in the automotive industry, financial performance critically depends on the efficiency in production and (inbound) logistics processes. While plug-in hybrids can usually be manufactured on the same assembly lines as conventional cars, as both share the same platform, battery electric vehicles (BEVs) are often based on new platforms and hence require dedicated assembly lines.

As BEV volumes are picking up, OEMs begin setting up new dedicated factories or remodeling existing factories and assembly lines to enable BEV production. Due to the criticality of logistics and production efficiency, OEMs will likely adopt equally centralized production setups as they have adopted for conventional cars, with a single or only very few factories per model. For example, BMW has established a single global factory in Dresden, Germany for its electrical i3 model. Audi is about to commence production of the fully electrified SUV Q6 e-tron in Brussels. In fact, the Nissan Leaf currently seems to be the only BEV that is being produced on three continents simultaneously. Given the highly anticipated demand for electric vehicles in China, GM is about to open a new production plant for electric cars in Shanghai. Likewise, Tesla is currently thinking about opening its first Asian electric car plant in Shanghai.

These relatively centralized production setups reduce complexity of inbound flows; however, they also lead to increased logistics complexity and cost in outbound flows as well as to higher lead times compared with a more decentralized production setup. Centralized production setups often involve exporting and importing fully assembled cars, which often attracts high taxation. This is one reason why Tesla is considering producing electric cars within China rather than shipping them from the US.

A common way to mitigate the tax burden from shipping fully assembled cars is to use semi knock down (SKD) or complete knock down (CKD) assembly. Instead of shipping an assembled car, the OEM creates and ships a kit containing an entire set of parts required to assemble a single car. Of course, this approach requires local BEV assembly capacity at each destination, which is probably feasible in key markets. In markets where local assembly capacity is not justifiable, it seems likely that OEMs will continue to ship fully assembled cars for the foreseeable future, despite tax disadvantages.


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.


The choice of transportation mode – road, rail, ocean, and air – is also impacted by automotive electrification. Batteries, connectivity equipment, advanced driver assistance systems, and other electrical components of a BEV have a higher value density than the parts for a conventional vehicle. This would normally justify air transportation in case of long distances to minimize inventory capital costs. However, because the ultimate objective of an electric vehicle is to reduce carbon emissions, OEMs may try to avoid a heavy carbon footprint in their BEV supply chains.

A frequently used alternative to air transportation is rail, and OEMs are increasingly using trains from Asia to Europe. This route has become a key focus area for our own specialist freight division, DHL Global Forwarding, and for other major logistics service providers. Ocean transportation can be used for large distances if rail links are not available. In case of short distances, road transportation is most suitable and flexible.

In addition, transportation of batteries is strictly regulated due to the risk of in-transit thermal runaway. Air transportation is often complicated because many commercial airlines decline to carry heavy lithium batteries for safety reasons, thus limiting the locations that can be reached via air. Special authorization and packaging are often required for shipping via air. Road and rail transport are often regulated by local bodies, leading to several (potentially inconsistent) regulation requirements in the case of cross-border transports. Ocean transport is currently the most straightforward mode of transportation, albeit also the slowest mode for long-distance transportation.


As OEMs and suppliers inevitably reexamine the best manufacturing locations in the electrified future of the automotive industry, automotive supply chains are on the brink of inevitable change. In particular, today’s automotive inbound to manufacturing and outbound supply chain may soon look different.

Please get in touch with the Olaf Hermanni if you would like to explore this topic in greater depth.