The automotive industry is undergoing a major transformation from petrol and diesel cars to electric vehicles with significant implications for the Western auto supply chains.
Morgan Stanley’s global director of research Katy Huberty told clients in a note Tuesday that her global Autos research desk forecasts a complete “re-wiring” of the EV battery supply chain “through the lends of a multipolar world” will require $7 trillion in investment by 2040.
Our global Autos team led a broadly collaborative analysis that revisited the investment implications of the EV battery supply chain, which they first explored in November 2021 (The New Oil: Investment Implications of the Global Battery Economy).
A key enhancement in their new work: They viewed the battery supply chain through the lens of a Multipolar World. They conclude that if the West wants to drive EV adoption to meet decarbonization goals, while also mitigating national security concerns, a radically new battery supply chain will need to be created, with developments in battery chemistry having the potential to widen the menu of technologies available to meet climate goals.
They estimate that total investment of $7 trillion would be needed in the EV battery supply chain by 2040, a figure that assumes an array of targeted regulations and policies to facilitate an onshore, decarbonized battery supply chain. They think it may require more than a decade to achieve industrialization and standardization, gated by a host of geopolitical, environmental, and economic considerations.
Onshoring the EV battery supply chain from Asia to the West will require a massive effort by governments and corporations. They will need to invest trillions of dollars to take market share from China, which already controls 90% of the global EV battery supply chain.
“We cannot rely on market forces alone to drive us to an electrified, onshore future. Policy around adoption must be coordinated with policy around supply chain and sourcing, and the more acute need is on supply rather than demand, in our opinion,” Morgan Stanley analysts said in a Sunday report note titled “Re-Wiring the EV Battery Supply Chain: Global Investment Implications.”
Though the US Inflation Reduction Act has been incentivizing onshoring of critical EV supply chains, the Western world faces a significant task in rejiggering the battery supply chain to be less reliant on China. This is all in an effort to achieve clean energy targets for the transportation sector by the mid-2030s.
The green future sounds great, but for it to be realized, nuclear power generation capacity needs to be dramatically increased. If not, the West’s power grids will be even more unreliable and resemble ones from third-world countries.