Automotive’s Existential Challenge – Supply Chain Awareness for EV Production

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Automotive's Existential Challenge - Supply Chain Awareness for EV Production

It has become necessary today for the OEM automotive assemblers to assert varying degrees of control over the component companies in the total supply chain for electric vehicle (“EV”) storage batteries and, also, for rare earth permanent magnet motors, not only for those used in powering onboard accessories but also for the vehicle drive trains.

The automotive industry faces a new supply chain issue

Up until now OEM automotive relied on a tiered supplier system. For the supply of outsourced production parts (those that are actually on the finished car as delivered to the customer) the OEMs bought from prior approved, by them individually, Tier One vendors of the part. In turn, these Tier Ones were responsible for the selection of qualifiable (to the OEM) vendors to themselves, these would be the Tier Twos. The daisy chain continued until the anchor of the supply chain, the mine and/or the mineral processor was reached far, far away from the concern, or understanding, of the OEM automotive assembler’s procurement operations.

The reliance on the daisy chain of tiered responsibility has been upended by the need for the fine chemicals required to manufacture lithium-ion storage batteries and rare earth permanent magnet motors.

Those total supply chains with enough capacity to supply an OEM automotive assembler exist today only in China, which has been constructing those supply chains for at least 15 years.

Lack of understanding of key players in the supply chain

American (and European and non-Chinese Asian with the possible exception only of Japan) do not understand these supply chains well enough, much less the detail of their individual component companies, to identify the key players, much less to manage them from the standpoint of strict adherence to specifications, quality control, on-time delivery, and guaranteed pricing, the main pillars of OEM automotive procurement.

OEM automotive has thus embarked on what I like to call, The-Streetcar-named-Desire system of procurement selection, the industry depends on the kindness of strangers. The main barrier to success in such a system is the absence of experience among the procurement groups of almost any knowledge of the principal industries, mining, chemical engineering, and technology metal-enabled component manufacturing that need to be reconfigured to meet the rigid standards for qualification among the OEM automotive assemble industry.

Experience currently not driving government and business decisions

Just as an example of the pervasiveness in America of this dilemma, I asked the U.S. Dept of Defense why they chose the American rare earth mining company, MP Materials Corp. (NYSE: MP), and the Australian rare earth miner, initial processor,  Lynas Rare Earths Ltd. (ASX: LYC) to develop separation systems for “heavy” rare earths, when neither company had ever done such development work. The answer was “Both had large market capitalization, revenues, and significant retained earnings.” So, I guess, it will have been the “bean counters” who killed the program, not those who sought prior experience and proven capability among vendors.  

The OEM automotive industry has embarked on an existential challenge, the total replacement of a well-understood technology, ICE drive trains, with a long-established and proven total supply chain, with a supply chain, that for storage batteries and rare earth permanent magnet drive motors with which they have no experience at all.

What is needed

The mining, refining, and fabrication of industrial precursor forms of the technology metals for the OEM automotive industry are not well developed outside of China.

The survival of the non-Chinese OEM EV automotive industry will depend on selecting the component vendors in the distinctly different total supply chains for lithium and rare earths. Sadly, this cannot be left to the battery and motor vendors, who mostly do not have the political and financial resources to address the problems involved.

Final thoughts

The key problem to be faced is finding the necessary experienced expert total supply chain advisors.

How is that to be done?

Addendum: Key minerals in the EV industry

For the storage batteries:

  • Lithium
  • Nickel
  • Cobalt
  • Manganese
  • Copper
  • Aluminum
  • Steel
  • Tin

For the rare earth permanent magnet motors:

  • Neodymium
  • Praseodymium
  • Dysprosium*
  • Terbium*
  • Cobalt
  • Gallium
  • Copper
  • Steel
  • Tin

*Super critical

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5 responses

  1. rob dubeck Avatar
    rob dubeck

    I think what Ucore is doing by concentrating on the processing part of the rare earth industry will make them a gamechanger.
    Their revolutionary Rapis SX process reduces both capital and operating expense making it up to 65% cheaper to separate into oxides and metals

  2. Joseph O Avatar
    Joseph O

    They are testing it as we speak. RSX isnt really revolutionary but it may be a more efficient, cheaper and greener version of SX. Still not proven at a commercial level. So no real idea about capex and opex savings. If they can prove that, OEMs and such would jump in with offtakes
    It would be nice for jack to chime in with what he thinks about RSX potential? Any insights Jack?

  3. Jack Lifton Avatar
    Jack Lifton

    Joseph O

    I don’t really know anything of the economics of Ucore’s RapidSX, but I still agree with you that the technology is evolutionary, not revolutionary. Solvent extraction is the standard method for industrial scale separation of the rare earths, because it is the lowest cost method of doing so. The market demands for the various individual rare earths were and are satisfied by the productive capacity of China up until now. China, using only traditional SX today dominates the rare earths markets for separated individual rare earths. The problem with attempting to compete with the Chinese monopoly is really the cost of time. The commercial separation of neodymium/praseodymium from a natural mixture of the light rare earths can take up to 16 weeks in an SX system. Ucore says that this separation in a full scale RapidSX plant, yet to be built, will take just a few days, if that. For argument’s sake lets call the time ratio, therefore, 16:1; China:Canada. If this simplification is true then Ucore’s costs of separation will be much cheaper than that of the Chinese. Chinese labor, electric power, water, and regulatory costs are certainly not just 1/16 of those in Canada. Just the difference in paying skilled labor for 16 weeks, even in China, versus the same job in Canada for a few days would be enough to give the overall advantage to Ucore,
    I note also that Louisiana is a more hospitable climate for chemical processing and has a much larger pool of skilled workers in that industry than does Ontario.
    So, why aren’t MP and USA Rare Earths racing to license RapidSx from Ucore? Or, perhaps they are?
    The problem for Ucore is the attitude of institutional finance. The bearded overseers of capital prefer tried and tested technologies for production at industrial scale. Only governments pay for experimental trials of new technologies, because they most often fail to scale.
    Additionally, Ucore will have to find feedstocks, either to buy or to toll process.
    If Ucore weren’t helmed by Pat Ryan I woudn’t give it much of a chance of navigating the hurdles facing a technology change. But Mr Ryan has a solid record of success in the OEM automotive supply industry, and that is very rare resume in the natural resource processing industry. I am watching Ucore carefully, and hoping for its success.

    1. Joe O Avatar
      Joe O

      Thanks for the input Jack.
      If suppose is successful enough with CDP testing maybe MP has that discussion. But I know its a big if!
      USA rare earths. Weren’t they commissioning their own separation tech a couple yrs ago? (Ion exchange?)
      haven’t heard peep about it. They wanted to do a SPAC , we know that isn’t happening. Ucore needs 55 million for a SMC in LA US rare earths would need 10x for what they were planning to do.

  4. Rare Earths Investor Avatar
    Rare Earths Investor

    Agreed, Ucore has an interesting potential process to be proven at the pilot and then commercial level. However, I think your end-line manufacturers are simply interested in the required material being there when it is needed. Brand image reliability (via supply chain consistency) is vital to them after the disaster of the last couple of years when consumer confidence was severely damaged re., brand supply chain failures.

    Again, how OEM material is derived (as long as ESG compliant) may not be that important to them. Yes, if it allows for lower costs that would be an attraction, but factors including proven processing ability (LRE) and/or major US gov’ financing of involved entities plus significant private, is also likely to be a confidence builder for both potential new private financing and offtakes arriving.

    As suggested even the RE ‘names’ out there may not have past experience and knowledge when it comes to e.g., HRE processing, but as the old adage goes better the devil you know. It will no doubt be messy but we have a race between the RE processors that already have N. American strategic and private funding i.e., REEMF, MP, Lynas and the SRC as well as those going the more private route including Ucore and Energy Fuels.

    GLTA – REI

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