Revamping Supply Chains: Carmakers Prioritize Local Sourcing for EV Success 

A seismic shift is underway in the automotive world as electric vehicles (EVs) steadily gain prominence. To navigate this transformation, major carmakers, particularly in Europe, are proactively re-envisioning their supply chains. Companies like Mercedes-Benz and Stellantis are spearheading this change, strategically emphasizing localized logistics solutions. The goals are clear: increased efficiency, reduced costs, and a smaller environmental footprint – all crucial elements of a sustainable EV production model. 

The drive for localized production and supply chains is especially evident in the rapidly expanding domain of EV battery technology. European car manufacturers are carefully refining their supply chains in the early stages of EV development. This allows them to build more streamlined, cost-effective, and robust networks positioned for future growth. 

Mercedes-Benz: Reshaping the Supply Chain 

Mercedes-Benz has meticulously established a worldwide network of battery production sites for its EQ line of EVs, with factories dispersed across three continents. Localizing battery production is a cornerstone of the company's electric vehicle strategy. Currently, Mercedes-Benz operates battery manufacturing facilities in Germany (Untertürkheim, incorporating the Hedelfingen and Brühl parts of the complex, and Kamenz), Poland (Jawor), the USA (Tuscaloosa), China (Beijing), and Thailand (Bangkok). Furthermore, the company has revealed plans to construct additional plants in Germany (Kölleda and Sindelfingen) and Hungary (Kecskemét). 

While Mercedes-Benz partners with various global suppliers for access to the latest battery cell technologies, it has simultaneously made significant investments in localized raw material procurement. In fact, a 2022 agreement with lithium refiner Rock Tech will ensure a supply of lithium from its new factory in Guben, Germany, dedicated to serving the European EV market. Additionally, Mercedes-Benz holds an equal stake in Automotive Cells Company (ACC), a venture alongside partners Stellantis and TotalEnergies. This partnership gives the carmaker direct influence over the development and production of battery cells and modules within Europe, specifically customized to meet Mercedes-Benz's exacting standards. 

A Mercedes-Benz spokesperson emphasized the company's ambition to establish a "European battery champion with global aspirations" through its involvement with ACC. They added, "We are relentlessly focused on a localized procurement strategy, aligning production and sourcing within key markets. This approach not only mitigates costs and risks but also fosters greater sustainability." 

Mercedes-Benz leverages its vast experience in the design of complex drive systems and its battery cell research and development capabilities. By fostering close relationships with its suppliers, the company is able to drive its ambitious EV production goals while maintaining a focus on localized supply chains. 

Stellantis: Taking Charge of the Supply Chain 

Stellantis, another major player in the European automotive industry, has also recognized the strategic benefits of localized sourcing. The company's partnership with Mercedes-Benz and TotalEnergies subsidiary Saft in the Automotive Cells Company (ACC) underscores its commitment to this approach. Stellantis' Dare Forward 2030 plan includes ownership stakes in battery manufacturers, aiming for a carbon-neutral footprint across its entire supply chain by the year 2038. ACC's new gigafactory in Billy-Berclau, Douvrin, France, is expected to play a pivotal role in Stellantis' goal of scaling European battery production capacity to 250 GWh by 2030. 

Maxime Picat, Chief Purchasing and Supply Chain Officer at Stellantis, highlights the multi-faceted analysis that goes into sourcing decisions. "When making sourcing choices, we consider factors like cost structures, distances, logistics costs, and potential tariffs," he explains. 

Localized Production and Industry Challenges

Stellantis is actively building a robust local supply network around its Douvrin gigafactory. ACC intends to utilize a dedicated warehouse in northern France for battery logistics. In June 2022, logistics provider PSA BDP opened this 22,000 square meter warehouse in Dunkirk, France, strategically aligning with the rapid development of EV technology in the region. Douvrin represents the first of three planned European gigafactories, with two more slated for Italy and Germany. ACC seeks to further expand localized supply, with CEO Yann Vincent emphasizing that relocating more EV battery factories to Europe addresses numerous challenges. These include better controlling the production chain, minimizing the environmental impact of battery transportation, and "helping to consolidate the European automotive industry in the face of global competition". 

Picat elaborates on the unique complexities of the EV supply chain. With an industry landscape in constant flux and the potential for new rules and regulations governing EV battery transportation, localized sourcing offers multiple benefits. "Shipping raw materials like lithium differs entirely from shipping a plastic component. One day, the EU might impose new stipulations on batteries entering Europe. We need to be prepared for all possible disruptions and requirements." 

In November, Stellantis further solidified its localized battery supply by signing a non-binding memorandum of understanding (MoU) with Chinese battery manufacturer CATL. This agreement covers the regional supply of lithium-iron-phosphate (LFP) battery cells and modules for European-manufactured EVs. The two companies are even exploring a 50/50 joint venture to identify additional avenues for strengthening a localized battery value chain. 

Local for Local: Advantages and Strategies 

Beyond reducing costs and emissions, a localized supply chain offers the crucial benefit of securing raw materials more directly. Mercedes-Benz fully recognizes this advantage. "To mitigate potential disruptions in the global supply chain, Mercedes-Benz emphasizes a local-for-local approach, working with multiple suppliers," a company spokesperson explains. "This is designed to ensure regional independence, even when raw material deposits are geographically limited, as they are in Europe. We see this as an opportunity to reduce dependencies by diversifying our sourcing strategy." 

The company further states that environmental considerations are of paramount importance. Mercedes-Benz fosters long-term, sustainable collaborations with its raw material suppliers, enabling direct adherence to its sustainability standards deep within the supply chain. 

The Importance of Resiliency 

Mercedes-Benz takes a long-term strategic view, working to secure raw material supplies both directly and indirectly to manage potential risks. This includes exploring new raw material sources and collaborating with partners on innovative approaches for significantly reducing raw material usage per EV. A company focus on establishing purchasing sources close to its production facilities further enhances supply chain resilience. 

At present, Mercedes-Benz doesn't source the majority of its raw materials directly but continually evaluates all potential options. This includes investigating new ways to reliably source sustainable raw materials to satisfy the demands of its rapidly scaling EV mass production. The carmaker is constantly diversifying its sourcing channels and screening for additional qualified suppliers. 

"For us, the shift towards electric mobility also represents a transformation in our supply chains," states Gunnar Güthenke, Head of Procurement and Supplier Quality for Mercedes-Benz Cars. "Our central aims are sustainability, a robust supply of raw materials, and competitive pricing. To achieve these electrification goals in major markets, Mercedes-Benz is diversifying its sourcing strategy and moving towards greater vertical integration in drive technologies." 

The Commodity Question 

Stellantis' Maxime Picat shares a similar perspective, emphasizing that localization benefits need to be considered on a case-by-case basis for different commodities. "Localization decisions often hinge on whether sourcing from distant locations has significant cost implications or if local competitiveness is achievable," he explains. "These are some key factors driving our construction of gigafactories within Europe, in France, Italy, and Germany. You carefully evaluate all elements, including energy costs, before arriving at a decision." 

Sometimes, Stellantis will continue sourcing globally if it maintains a competitive advantage. With other commodities or raw materials, however, regional suppliers may offer greater benefits. 

Beyond these considerations, Stellantis is also directly investing in mines to gain greater control over raw material sourcing. This specifically targets cathode active material (CAM), pre-CAM, lithium, cobalt, and manganese. Mirroring its previous strategies for internal combustion engine (ICE) vehicles, Stellantis is applying a similar approach to EVs. This involves establishing joint ventures on gigafactories and taking ownership in mines. "We are injecting equity into mines to guarantee full control over costs and the total volumes a mine can deliver. Ultimately, we need to secure the entire chain of raw materials leading up to the battery itself," Picat asserts. 

Previously, Stellantis purchased materials like palladium, rhodium, and platinum for exhaust systems, providing these to its suppliers for the creation of finished products. This same strategy is now being deployed for EV batteries, effectively building greater resilience into the supply chain. 

Future-Proofing Supply Chains Through Localization 

While the advantages of localization are clear, pinpointing the optimal locations for EV supply chains in Europe poses some challenges. The continent lacks a history of lithium-ion battery production, and the EV production ecosystem is still developing. This makes it difficult to predict which regions will emerge as the next EV production and logistics hotspots. 

Stellantis tackles this challenge with a pragmatic approach: leveraging its existing infrastructure. The company has ICE plants strategically located across the continent, along with trusted suppliers and partners ready to adapt their operations. It also has a skilled workforce whose livelihoods would otherwise be threatened in a post-ICE era. 

"Let's be clear – the year 2035 marks the end of ICE sales," Picat states. "Many of our plants currently focus solely on ICE manufacturing, whether it's engines or gearboxes. It's imperative to find solutions for our employees, who are our most important asset. This is why ACC's first gigafactory is based in Douvrin, an area previously dedicated to ICE engine production. We have a talented, experienced workforce there, and their skills can be incredibly valuable in the gigafactory environment. There's a strong pattern to our decisions here." 

Building Upon Existing Networks 

Picat emphasizes that while gigafactories are springing up across Europe, their construction represents a significant investment. It simply isn't feasible to build a new gigafactory for every supply chain risk mitigation scenario. 

When determining the most suitable locations for its gigafactories, Stellantis carefully analyzed its past assembly plant placements. Intriguingly, these past decisions align remarkably well with current strategic needs, and Stellantis is actively adapting these facilities for EV production. 

This process isn't without challenges. Adapting existing structures and upskilling the workforce require careful planning, investment, and ongoing evaluation. Stellantis is fully committed to this approach, however, as it recognizes the value of its established footprint and the vast potential of its existing employees. 

A Circular Economy: Reducing Waste, Maximizing Efficiency 

The drive towards localization aligns perfectly with the growing focus on creating a circular economy within the automotive industry. As battery technology matures and EVs reach end-of-life, effective recycling processes become paramount. Localized supply chains can streamline the recovery and repurposing of essential materials. 

Mercedes-Benz and Stellantis are both investing heavily in research and development related to battery recycling. Mercedes-Benz has already begun construction on a pilot recycling plant in Kuppenheim, Germany. At this facility, the company will explore methodologies for recovering valuable resources like lithium, nickel, cobalt, and manganese at high purity levels. 

Stellantis, meanwhile, is exploring collaborative ventures with recycling specialists. These partnerships offer the potential to recover and reuse not only battery components but also vital materials like copper used in traditional vehicle production. Building a circular model reduces the strain on raw material supply chains and lessens the environmental impact of manufacturing. 

Government and Industry Collaboration 

Government support is proving crucial in the transition towards localized EV production, a fact not lost on European carmakers. Incentive programs, subsidies, and favorable legislation can significantly influence a company's decision to establish or expand manufacturing facilities within a specific region. 

The European Union recognizes the vital role that a thriving EV market can play in job creation and economic growth. As a result, initiatives like the European Battery Alliance (EBA) are gaining momentum. The EBA brings together governments, manufacturers, and research institutions to foster knowledge-sharing, collaboration, and increased investment in a European battery value chain. 

Stellantis and Mercedes-Benz actively participate in these types of initiatives. They influence policymaking and contribute to the development of sustainable standards encompassing the entire lifecycle of an EV battery. 

Balancing Global and Local: A Hybrid Approach 

While the advantages of localization are undeniable, many carmakers will likely continue to blend localized sourcing with select global partnerships for the foreseeable future. This hybrid approach ensures access to cutting-edge technologies while managing costs and mitigating potential risks within the supply chain. 

As the EV market further evolves, so too will the strategies that carmakers employ. The flexibility to adapt sourcing and production models will ensure continued competitiveness and position European carmakers as leaders in a rapidly transforming global industry. 

The Road Ahead: Challenges and Opportunities 

While the transition to localized EV supply chains holds immense promise, it won't be without its challenges. Building robust local networks and scaling up infrastructure will require substantial investments of time and capital. Additionally, potential legislative shifts concerning the sourcing and movement of raw materials will need careful monitoring. 

Government policies could present both obstacles and opportunities. Regulatory changes can significantly impact the speed and direction of EV industry development. Potential trade restrictions might limit the free flow of raw materials or finished products, while tax incentives could encourage local battery manufacturing and production. Navigating this fluid regulatory environment will be essential for carmakers in the years to come. 

Furthermore, building partnerships with a diverse range of suppliers, from raw material miners to component manufacturers, will contribute to secure and flexible supply chains. Collaborations within the industry, as we've seen through joint ventures like the ACC, will remain crucial as carmakers continue to push the boundaries of EV development. 

Addressing the skills gap will also be a key focus for European carmakers. As production shifts from traditional ICE vehicles to EVs, a skilled workforce will be needed to design, manufacture, and maintain the intricate technologies that power these vehicles. Initiatives to reskill existing workers and collaborations with educational institutions will be essential for success. 

Consumer Perspective: Transparency and Sustainability 

Ultimately, consumers will play a crucial role in driving industry change. Increasingly, car buyers are demanding transparency in supply chains and prioritizing sustainability. As public awareness grows regarding the environmental and social impacts associated with raw material extraction and production, carmakers will continue to face pressure to adopt ethical and responsible sourcing practices. 

Traceability and transparency throughout the supply chain will become essential for building consumer trust. Blockchain technology offers a promising solution, providing secure and immutable records of a battery's journey from raw materials to the finished vehicle. This can ensure both sustainability and ethical sourcing practices are followed at each stage. 

Looking to the Future 

The shift towards localized EV supply chains promises a more efficient, cost-effective, and sustainable future. European carmakers, particularly Mercedes-Benz and Stellantis, are leading the way in this transformation. By investing in localized production and procurement, they are creating vital economic opportunities for their regions and solidifying Europe's position as an EV innovation leader. 

While challenges and uncertainties will continue to present themselves, a localized model creates greater resiliency. It offers carmakers the ability to address potential supply chain disruptions with agility and positions them to seize upon emerging opportunities in the dynamic EV market. 

The next few years will be pivotal in the evolution of the automotive industry. The companies that embrace strategies centered around local sourcing, sustainability, and collaboration are well-positioned to not only weather future uncertainties but emerge as true leaders in this revolution.