Two weeks following President Biden’s announcement of an executive order aimed at making all new vehicles sold by 2030 electric, we focused our ESG Safeguard platform to take a closer look at an often overlooked part of the EV equation, the supply chain. In response to Biden’s announcements, key players are commiting to tackling the three major challenges faced by electric vehicle makers today; upskilling their workforce, obtaining crucial raw materials, and ramping up mass production of the necessary parts for electric vehicles (EV)

By
Sophia Matellian
|
August 19, 2021

ESG Spotlight: Uncovering the Key Suppliers in the EV Race

Article
ESG Spotlight: Uncovering the Key Suppliers in the EV Race

Two weeks ago, President Biden announced a multi-step strategy and executive order aimed at making half of all new vehicles sold by 2030 electric. We focused our ESG Safeguard platform this week to take a closer look at an often overlooked part of the EV equation, the supply chain. The executive order specifies that the U.S. government will only purchase EVs made in the U.S. by a unionized workforce. In addition to the federal government purchasing requirement, Biden proposed a law that calls for $2,500 in tax credits to consumers who purchase American-made EVs and an additional $2,500 in tax credits to consumers who purchase EVs made by a unionized workforce. However, there are currently no American car manufacturers with a unionized labor force producing EVs. The world’s largest EV manufacturer, Tesla (TSLA), is non-union; which disqualifies them as a potential government supplier and makes their products ineligible for the full proposed tax incentive.

That being said, the three main challenges faced by all car manufacturers in the race to meet these targets are:

  1. Upskilling their workforce to meet this new demand
  2. Obtaining the rare earth materials (REMs)—lithium, cobalt, and nickel for EV batteries
  3. Achieving mass production of parts that meet the performance standards of these newly designed vehicles

While using data from our ESG Safeguard platform, we identified companies that are charging ahead to meet these challenges and help achieve 'our shared environmental goals.'

ESG Safeguard Platform: Environmental Mentions & Sentiment, Automobiles & Components Industry, Past 90 Days

Honda (HMC)

Honda responded to the Biden Administration’s call to action by committing to training their workforce and investing in the transition to EVs. Prior to this, Honda had already made their own strides towards sustainability in 2019. In conjunction with BMW, Ford, Volkswagen, and Volvo, Honda committed to developing new vehicle greenhouse gas emission standards with the state of California. According to the January 2021 US EPA Automotive Trends Report they are “America's most fuel-efficient, low-emissions full-line automaker”. However, they recognize that low emissions is not enough to save the planet. In April, Honda committed itself to be carbon neutral by 2050 with intermittent goals to increase their sales of battery-electric and fuel cell EVs from 40% in 2030, 80% in 2035, and finally to 100% by 2040.

Volkswagen Group (VWAGY)

In an effort to promote a sustainable and responsible lithium supply chain; Volkswagen Group, BASF (BASFY)—the world's largest chemical producer, Daimler AG (DDAIF)—one of the world's leading car manufacturers, and Fairphone—developer of low-environmental impact smartphones, have formed an initiative named Responsible Lithium Partnership. The demand for lithium is expected to grow rapidly and the Partnership aims to foster a dialogue with local stakeholders to generate information and seek solutions on how to meet the increasing demand. With the largest lithium reserves in the world, Chile is in a fragile state to respond to this demand as increased mining poses threats to its ecosystems as well as local communities. Although automakers stand to face higher material costs, the Partnership is committed to a sustainable, human rights-centered approach to their supply chain, even if it reduces margins.

Dana Inc. (DAN)

Dana Inc. has focused on improving its electrification product portfolio with a $400M investment over the past three years. The company has focused on improving its EV batteries as well as developing software to support EV platform integration. The car-part manufacturer provides lighter and more aerodynamic parts well-equipped for use in EVs, making them attractive from a cost and emissions standpoint. Dana Inc. has also focused on developing non-cooling batteries with heating options, allowing the batteries to perform in a broad range of temperatures; from minus 22 to 113 degree Fahrenheit. As the efficiency and range of EV batteries are affected by temperature, this development is promising for the future of EVs. Based on the new EV push, the company is expecting to see their electrification product portfolio become both profitable and a key driver in the company’s overall projected growth from $9B- $10B over the next few years.

Charging-Up for EVs

This week we’ve taken a look at how the US car industry is ramping up in response to President Biden’s Executive Order. The goal to achieve 50% EV sales is a lofty one, and many car manufacturers are taking this seriously. Strong shifts in the supply chain as highlighted by our ESG Platform have identified key areas where investments are being made to capture future positions in the market. Making commitments to ensure their source of raw materials is secured in an ethical way, Volkswagen and Daimler standout in the field as ESG pioneers. In addition, key developments by Dana illustrate the seriousness in which companies are taking this new directive, funneling investments and R&D into developing a new green future.

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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.

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