Source: AAG Insight
In recent years, as electrification has become an unstoppable trend, the stability of power battery supply has become the major sense of security for car manufacturers. Earlier this year, both the Audi E-tron and the Jaguar I-Pace experienced a lack of production capacity due to LG Chem stop production. The phrase "before the troops move, the food and grass first" is aptly applied to the new energy vehicle industry. Major OEMs and battery manufacturers are scrambling for cobalt, nickel and other key raw materials and precious metals, just as in the 1920s and 1930s, the global competition for oil and gas resources. However, the competition for raw materials for batteries has now added a new dimension, the supply chain ethics.
The Democratic Republic of Congo (DRC), a war-torn country in the past, has been found to have nearly 50 percent of the world's cobalt resources. During the last two years of "cobalt dominance," many raw material suppliers chose to source low-cost cobalt from DRC vendors. It is refined or sold directly to higher-level suppliers, battery companies and even car companies. The cobalt in the hands of vendors, however, comes from local artisanal miners. According to the World Bank, there are two million artisanal miners in the Democratic Republic of Congo (DRC). Driven by profit, local artisanal mining is accompanied by an even more tragic story: a large number of child labors as well as mentally disabled are illegally forced to work as artisanal miners. Intense artisanal mining operations have been conducted, and people have even been seriously injured or killed due to starvation, exhaustion, and collapsed tunnels. When these tragic stories were exposed in the media, what followed was an outcry against major suppliers, battery factories, and even car companies. At the meantime, various charitable groups condemned that there was unethical cobalt in the batteries, and for a time, consumers began to boycott the products.
In the face of the cobalt supply chain ethics crisis, where should new energy vehicle companies go from here? AAG believes that, from the supplier's perspective, companies should firstly filter the upstream businesses to identify any suspicious suppliers who cannot provide any supporting evidence from any source; from a public relations perspective, companies must ensure that information is open and transparent, such as BMW, which discloses the origin and ethics of key raw materials on its website; from technology and innovation angle, it can be combined with the application of blockchain technology to ensure that the information is transparent, effective, and tamper-proof, as in the case of Volvo, the technology is deeply applied to its cobalt supply chain, ensuring that every piece of cobalt can be traced throughout; finally, in terms of long-term strategy, companies should setup own criterias, combining future needs and social responsibility, to select the origin and suppliers of cobalt raw materials and lock down the resources. At the same time, ensuring a good corporate image.
Although companies such as Tesla have proposed plans for a cobalt-free future, at this stage cobalt will remain a topic that cannot be avoided, and its supply chain ethics need to be rethought and taken seriously.
AAG Insight - Cobalt Supply Chain Ethical Crisis and Countermeasures