The electric vehicle (EV) market has grown considerably as consumer demand has shifted away from internal combustion engines. New EVs fit the needs of today’s buyer, providing power, performance and innovation. The desire for EVs has steadily increased but manufacturers are challenged by a supply chain overwhelmed with shortages and disruptions.
Demand Outpaces Supply
The success of EVs is evident with companies like Tesla, which sold nearly a million cars last year. Both Tesla and Mercedes-Benz saw a 90% increase in EV sales in 2021 compared to the previous year. Even with EV popularity rising, and predicted to eclipse that of combustion engines, production has been hindered by supply chain obstacles.
Both EVs and combustion engines rely on electronic components, but EV chip requirements are larger in number and application. While combustion engines use around 3,000 – 4,000 multilayer ceramic capacitors (MLCCs), a hybrid vehicle utilizes around 12,000. In an EV, the battery alone requires 18,000 MLCCs. Considering over 40% of the cost of a new car is semiconductor-based chips, the money spent on electronic components factors heavily into a vehicle’s price.
These components have had insufficient supply since the early days of the pandemic. Difficulties persisted for even the largest component producers. For example, Murata – the world’s largest supplier of MLCCs, had to suspend production lines in Japan because of COVID-19.
The number of components required for EVs resulted in the industry being one of the hardest hit by the chip shortage. Manufacturing stoppages and component scarcities caused production delays and shutdowns. Volkswagen sold out of EVs in the US and Europe for the rest of 2022, Ford stopped taking reservations for its electric truck after receiving 200,000 preorders and Tesla lead times range from seven months to a year.
Delayed releases impacted the Nissan Ariya, Rivian R1T and R1S plus Tesla’s Cybertruck. GM was one of few to successfully complete a 2022 launch with its GMC Hummer EV, but it was only possible because GM prioritized EV manufacturing lines.
To work around the chip shortage, Tesla removed one of two electronic control units in the Model 3 and Model Y steering racks. This only provided temporary relief and the company still struggled to meet Q4 sales goals.
Pacing the Speed of Innovation
Meeting consumer demand has not been easy for manufacturers. GM was early to the market with the Bolt but discovered the vehicles were high fire risks. This was because of manufacturing defects and GM has since recalled 73,000 vehicles. Tesla and Hyundai had similar issues with battery fires, all related to problems within the manufacturing process. Tesla recalled models from 2021 and 2022, a total of 130,000 EVs, because of the possibility of a computer chip in the infotainment system overheating during fast charging.
Despite an early barrage of demand for Rivian’s battery-powered pickup trucks, the chip shortage caused a 50% drop in production. Even with big name investors like Amazon, the company’s newcomer status has made it difficult to secure resources. While investing billions into a new manufacturing plant gave Rivian the space to manufacture, the company will need to build stable relationships with chipmakers and distributors to fulfill orders.
Strategic Problem Solving
Combining expansion, partnerships and forecasting would ease the burden on production. Over the next four years, more than a dozen new EV and battery factories are planned for just the United States. To avoid recalls, GM and Tesla are improving over-the-air software updates.
To alleviate the pressure on the supply chain, manufacturers should develop strategic relationships to secure components. Like Dell’s relationship with Intel, EV makers could exclusively work with companies like STMicroelectronics for key components, such as motor controllers that are used to operate automatic doors. Strategic partnerships would ensure reliable allocation and cost savings for parts that are highly utilized.
Committing to long term supply partnerships would also boost automakers’ brand reputation and reliability in the market by better ensuring supply allocation. Semiconductor competition is steep, especially since smartphones, video game consoles and other consumer electronics are historically more profitable partners for chip manufacturers. However, the increased number of chips required for EVs raises the size of automakers’ orders, making partnerships a more worthwhile investment for suppliers.
The EV market demonstrates the critical relationship between supply chain management and addressing heightened demand. The balance between supply and consumer needs is a difficult line to walk, but desire for technological advancement isn’t slowing any time soon. To keep up with the pressures of the market, supply chains must be strategically positioned to be proactive, flexible and forward-thinking.