Desperate to fix troubled supply chains, EV makers look to new tech
The difficulty electric carmakers face building supply chains free of human rights and environmental violations came into focus earlier this year, when U.S. investigators completed their probe of a massive mining tragedy in Brazil.
Before 270 people were killed in a collapse of a dam holding iron ore mining waste — most of them buried alive in a deluge of toxic sludge — the metals company Vale provided audits and certifications to assure clients and investors of its commitment to safety and environmental stewardship. The lawsuit the Securities and Exchange Commission filed in April charges that the paper record was fraudulent, with Vale manipulating audit reports and suppressing crucial safety findings ahead of the 2019 catastrophe.
The SEC’s federal lawsuit was a wake-up call for an auto industry straining to source massive amounts of new metals in a manner consistent with the green branding of electric vehicles. Vale denies wrongdoing, arguing it followed all disclosure laws and that the tragedy “was not reasonably foreseeable.” But car industry officials widely acknowledge that the shortage of materials crucial to quickly ramping up production too often leaves companies reliant on unscrupulous operators.
Now, with new federal rules that tie lucrative tax breaks to supply chain accountability, the world’s major auto manufacturers are racing to get a better grip on the origin of their materials and who is being harmed by the way they are extracted and processed.
“People care where these things are coming from,” said Aimee Boulanger, executive director of the Initiative for Responsible Mining Assurance, a nonprofit that tracks the sustainability of extraction operations around the world. “It is hypocritical to say we are here with these electric vehicles to solve our climate problems if, in making them, we contaminate a community’s drinking water or dry up the irrigation wells they rely on.”
Car companies have another motive. Some of the EV tax incentives in the recently passed Inflation Reduction Act apply only to cars made from materials sourced in the U.S. or a handful of other nations. The financial risk of not tracking the origin of components just got much bigger.
As companies scramble to build out and get control of their supply chains, they are finding out how much they don’t know about them. They are learning that contractors who pledged to provide sustainable cobalt, for example, may be sneaking in sacks of the metal extracted with child labor, as detailed in lawsuits and a recent U.S. Department of Labor report. Some maybe concerned the nickel supplies they assumed meet the highest environmental and social standards are corrupted with product smuggled from Russian producers in violation of sanctions.
“This is a big challenge for these carmakers,” said Y. Karen Zheng, an operations management scholar at MIT’s Sloan School of Management. “Most companies don’t have much supply chain visibility. They have no idea where these things are coming from until crisis hits.”
Consumers, regulators and investors are increasingly demanding the car companies back their sustainability pledges with supply chain transparency. The result is a fast-changing landscape in which automakers are looking to pioneering technologies to fill the void.
Their push has big implications for consumers, potentially bringing to the car market the kind of visibility more commonly associated with organic food or sustainable clothing. Central to the effort is the vision for battery passports that will reveal to consumers exactly where the materials in their EV battery were sourced, based on “digital twins” auto companies create to track the origin and journey of materials in those batteries.
“It is a daunting task,” said Fredrika Klaren, head of sustainability at Polestar, a Swedish EV manufacturer that was founded by Volvo. “We are working with suppliers who are not used to sharing all this data. … We are developing granular traceability to measure the material embedded in car components, so we can give consumers a very exact calculation of the carbon footprint, and also show them how human rights have been protected by the companies producing these components and materials.”
Creating a battery passport adds about $10 to the cost of a vehicle, according to auto industry officials. They argue it is a small price to pay for the assurance that cars qualify for thousands of dollars in tax breaks.
Volkswagen has created an extensive sustainability rating system for its models, based on data from what the company calls a “radar,” making use of artificial intelligence to monitor every company that touches the materials used to build its cars, down to smelters and recycling firms.
Car manufacturers are also working with a rapidly expanding cottage industry of tracking firms that follow materials from the mine to the auto assembly line.
The technology engages handheld scanning devices, QR codes and satellites to keep tabs on materials as they make their way around the globe. Alert systems flag inconsistencies along the way, which could include unplanned changes in chemical composition of a material, satellite images failing to confirm shipments are coming from the places suppliers say they are, and local officials issuing violations on the ground.
London-based start-up Circulor, which works with Volvo, Polestar and Jaguar Land Rover, tracks 69 different metrics on its platform, some relying on digital forensics and others built around data others have already collected. They include not just the origin of material moving through the supply chain, but also the social responsibility track record of the companies supplying it, down to how many women they have in leadership positions.
“Everybody has been making these wild claims that they are the greenest company ever, ever, ever, when it is not true,” said Steve Westly, whose Silicon Valley venture capital fund has invested $25 million in Circulor. “Now we have regulators coming in and saying, ‘We want to know what’s behind these claims. We want to see verification.’”
One tracking tool Westly said Circulor is pursuing uses facial recognition software to monitor who is coming in and out of a mining operation, setting off an alert if a child enters the site. Company founder Doug Johnson-Poensgen said the mining dam disasters in Brazil and elsewhere have Circulor exploring technologies that track dam stability from space, flagging companies when conditions at the site of a supplier become dangerous.
The extent to which this deluge of data will be an effective marketing tool for car companies selling to sustainability-minded EV drivers remains to be seen. Carmakers are trying to figure out how to package it in the most consumer-friendly way, and avoid inundating buyers with confusing data points.
But Nick Nigro, founder of Atlas Public Policy, a research firm focused on sustainable technologies, said anything that pushes EV makers to be more diligent and open about their supply chains is a step in the right direction.
“At the end of the day, consumers want to know the product they are buying is not causing undue harm to others,” he said. “The industry needs to ensure that in this transition to EVs, we are not just trading dependency on oil for another bad thing.”