After the pandemic and microchip shortages, is there a raw materials crisis on its way?

Munich, June 2022

ar manufacturers have had to react to numerous external challenges in supply chains in the last few years. A shortage of key raw materials could bring about the next crisis – nickel, cobalt and magnesium are possible candidates

Over the last few years the car industry has found itself confronted with a range of major challenges in its supply chains. The Covid-19 pandemic, semiconductor shortage and now the war in Ukraine have done enormous damage. Vehicle production has fallen by 8%, from 90 million units in 2019 to 83 million in 2021.

Car manufacturers and suppliers have rapidly and repeatedly deployed their forces to solve these problems. The Volkswagen group, for example, had to organize various task forces in quick succession to support the market introduction of the electric ID.3, address the chip shortage and tackle the effects of the pandemic.

Volkswagen’s dilemma is representative of a structural problem for the whole of the global car industry: so far, companies have mostly taken only a reactive stance toward this seemingly endless series of challenges in the supply chain. The current situation in Eastern Europe is the latest example of this: some manufacturers are having to arrange second suppliers for wiring harnesses because these used to be produced in Ukraine.

With hindsight, it is obvious that a strategic analysis of new proactive approaches is necessary to reduce risks in the supply chain. So suppliers would be well advised to increase continuous transparency and early recognition of problems and configure supply chains so as to secure access to important markets and raw materials. Furthermore, it will become increasingly important to balance investment decisions between economically preferred options and minimal risk options. Suppliers and vehicle manufacturers need comprehensive knowledge of current and future challenges in the supply chain to put these approaches into practice.

The next challenge – nickel, cobalt and magnesium supplies

A shortage of important raw materials could potentially be the next major challenge for global automotive supply chains (see Figure 1). Rising energy prices increase the costs of production and transport of raw materials, while the transition to electromobility is forcing suppliers to examine the risk profile for critical raw materials. An analysis of 53 raw materials needed for electric and hybrid vehicles shows an increased procurement risk for 41 of them, in particular nickel, cobalt and magnesium.

Nickel is an important component of lithium-ion batteries, and a higher proportion of nickel increases the energy by volume and in turn the cruising range of battery electric vehicles. As the change to e-mobility accelerates, demand for nickel is forecast to rise by around 48% between 2021 and 2030. Russia is the biggest producer of nickel worldwide. In view of the uncertain duration and outcome that the invasion of Ukraine will have on future trade relations with Russia, the procurement risk rises dramatically.

Cobalt is also an important component of lithium-ion batteries. The price of cobalt has tripled since 2019, and demand is forecast to increase five-fold between 2021 and 2030. At such a rate, worldwide cobalt reserves will be exhausted by 2033. The looming procurement risk for cobalt is concentrated on two countries: the Democratic Republic of the Congo (DRC), which holds approximately 60% of global reserves, and China, which currently controls more than 50% of the DRC’s cobalt production by investing aggressively in domestic cobalt promoters. As a result around 70% of refined cobalt production takes place in China, which explains the car industry’s heavy dependence on this dominant supply chain.

China also meets around 90% of global magnesium demand and could be said to hold a monopoly. The car industry is one of the largest consumers of magnesium, where it is used mainly for lightweight construction and is essential for aluminum production. The industry’s magnesium consumption is expected to rise by an average of 7.6% per year between 2021 and 2030. The reason for this is the need to produce vehicles that are more lightweight in order to minimize emissions of fossil fuels, as well as increasing the cruising range of electric and hybrid models. A continual supply of Chinese magnesium is therefore absolutely crucial for car manufacturers, especially as the substance can only be stored for a short time. In the past year the procurement risk became clear when China reduced its production dramatically to keep within emissions regulations. Magnesium exports from China nose-dived and drove global market prices up by around 700%.

Dr. Ralf Walker


Peter Trögel


Christian Grimmelt


Eren Duygun


Three steps needed to keep ahead of the next supply-chain crisis

These alarming procurement risks – particularly for magnesium, cobalt and nickel – underline why car suppliers need to take positive and decisive action. It is important to develop proactive and strategic answers promptly to stay on the front foot when it comes to challenges in the supply chain.

Suppliers and manufacturers should first of all increase transparency and early recognition of problems in their supply chains. Data-driven and AI-supported risk-radar systems are necessary. These not only offer transparency through the whole supply chain down to the lowest levels, but they also facilitate forecasts about possible availability shortages through the use of AI.

Suppliers should also configure their supply chains to ensure access to important markets and raw materials. This is of decisive importance for the improvement of production flexibility, as a raw material-specific or component-specific strategy is then developed that determines which components are procured locally or globally. Similarly, a decision should be made on whether to use a single- or dual-source strategy, on the basis of a risk assessment of suppliers and raw materials.

Finally, investments and risks should be balanced against each other. Suppliers need to make a judgment on whether they want to pay a premium for extra supply security, or set up a risk fund to finance “what-would-happen-if” scenarios (for example stoppages or start-up difficulties).

The worst possible option would be to continue to rely on traditional systems and risk management processes in the supply chain and procurement. Since 2020, manufacturers and suppliers have been navigating a global environment in which wars, trade disputes, Covid-19, new technologies and the transition to electric vehicles are the order of the day. Risks have appeared quickly and out of nowhere, and one shortage in the supply chain leads directly to the next. Car suppliers can successfully counter these challenges and effectively minimize the risks through proactive strategic approaches to solving the problems.

About the Authors
Dr. Ralf Walker

Dr. Ralf Walker (1969) joined Berylls Strategy Advisors as a partner in September 2021, an international strategy consultancy specializing in the automotive industry. His expertise lies in operations and task forces.

He has been advising automotive manufacturers and suppliers in a global context since 2008. He has in-depth expert knowledge in the areas of Launch & Ramp up Management, Restructuring & Turnaround Management, Production & Supply Chain Optimization, Lean Management, as well as Strategy Development & Footprint Optimization.

Prior to joining Berylls Strategy Advisors, he worked 18 years for the Fraunhofer IPT, Management Engineers, Booz & Co and PwC Strategy& as well as 5 years for GKN as Head of the European team and member of the global team to introduce lean and business excellence principles, Production, and engineering manager.

Ralf studied mechanical engineering at the RWTH Aachen and did his PhD in engineering at the Fraunhofer IPT in Aachen.

Peter Trögel

Peter Trögel (1986) is principal at the Berylls Group, an international strategy consultancy specializing in the automotive industry. He has been advising automotive manufacturers and suppliers in a global context since 2012. Peter Trögel is an expert in operations and can look back on many years of experience in the transformation environment. His areas of expertise include development, industrialization, and production.

Prior to joining Berylls, Peter Trögel worked for Booz & Company and PwC Strategy&, among others, as a member of the management team in North America, Asia and Europe. He holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT) and the University of Technology Sydney (UTS).

Christian Grimmelt

Christian Grimmelt has been an integral member of the Berylls Strategy Advisors team since February 2021. Previously, he gained extensive professional experience in top management consultancies and in the automotive supplier industry.

During his time at the world’s largest automotive supplier, he drove the establishment of a central unit to optimize the company’s global logistics and production network.

Christian Grimmelt’s consulting focus is logistics and production network optimization, purchasing and (digital) operations including launch and turnaround management for OEMs and especially suppliers.

Christian Grimmelt holds a university diploma in industrial engineering from the Karlsruhe Institute of Technology.