What California’s New Electric Car Law Means for Global Supply Chains

Nari Viswanathan
Nari Viswanathan
Sr. Director, Product Segment Marketing, Coupa

Nari is currently Sr. Director of Product Segment Marketing at Coupa, where he helps bring products to markets in the areas of Supply Chain Design and Planning. Over the past 20 years, Nari has held VP and Director of Product Management, Research and Marketing roles at Aberdeen Group, River Logic, Steelwedge and E2open. He has significant experience building products from the ground up and managing the P&L for a product suite. He is a proven B2B marketer with expertise in content marketing, competitive intelligence, and positioning. He has published numerous thought leadership articles, whitepapers, blogs and delivered dozens of webinars during his career. Nari Viswanathan is a five times SDCExec Supply Chain Pro to Know award winner. Nari holds a master’s degree in Manufacturing Systems Engineering at the University of Wisconsin-Madison and a bachelor’s degree in Mechanical Engineering at the Indian Institute of Technology, Chennai.

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What California’s New Electric Car Law Means for Global Supply Chains

On August 25, California approved new rules that would end the sale of new gas-powered-only vehicles in the state by 2035. All new cars sold after that point must be electric or plug-in hybrids. On September 29, New York Governor Kathy Hochul stated that New York state would soon follow suit.

Why CA’s EV law matters for global markets

While these new rules have the potential to significantly reduce planet-warming greenhouse gas (GHG) emissions — eliminating up to 395 million metric tons of GHGs by 2040, or the equivalent of stopping 915 million barrels of oil from being burned — they will also have a huge impact on markets and electric vehicle (EV) supply chains beyond California and New York.

California has the largest car market in the U.S., accounting for about 9% of all new car sales, and California’s new law may inspire at least a dozen other states to pass similar laws. Even prior to this, auto manufacturers like GM and Ford began making commitments and investments to up their EV offerings. In sum, these laws are a microcosm of emerging trends and will likely create a domino effect of similar regulations.

What more electric cars mean for already stressed global supply chains

  • Potential raw material shortages. Right now, EV battery supply chains rely on cobalt, nickel, and lithium. While lithium is in abundant supply, more lithium refineries are needed. Researchers are also concerned about cobalt — both for its supply as well as potential health and human rights implications. Other companies are exploring alternatives, but more research is needed to assess their environmental impact and effectiveness.
  • More semiconductors will be needed. News of the semiconductor shortage first made waves at the beginning of the pandemic, and was exacerbated in the automotive sector. McKinsey estimates that the semiconductor shortage will persist in select industries for at least the next three to five years. This will likely continue to affect EVs, given that EVs require more semiconductors than vehicles with combustion engines. The U.S. government has committed more investments into chip manufacturing and is partnering with Mexico, but it takes time to get new plants up and running, negotiate deals, and produce the chips.
  • Compliance will become even more important. As with any new law or regulation, companies will need to step up oversight of their EV supply chain. Supply chain organizations will need to ensure they have visibility into every step of their networks to catch potential violations before they cause disruption, and ideally, so they don’t happen at all.
  • EV supply chains will need to include flexibility and optionality in their list of priorities. In order to make EVs more accessible to the average consumer, costs need to be kept down. At the same time, cost must be just one of many considerations. Given the situation laid out above, auto manufacturers must design their supply chains with optionality and flexibility in mind. They must also be able to stress test their supply chains, all of which requires embracing continuous supply chain design.

What's ahead for EV supply chains

Demand for EVs has been rising globally. Transportation contributes to 14% of GHG emissions globally, so these new electric car laws, combined with other industry trends and commitments could have enormous implications for lowering emissions globally.

This is one essential part of stopping the worst effects of the climate crisis. But there is a long way to go, and much depends on resilient and effective supply chains.

No short-term solutions exist, but here are some things to monitor going forward:

Automotive supply chains are facing fundamental shifts. As EVs cut into the share of existing gas-powered vehicles, auto manufacturers need to be able to do more than just forecast demand: they need market-sensing capabilities that can help them predict and respond to market volatility.

Structural changes in these supply chains also mean that companies need to embrace continuous supply chain design so they can pivot quickly and adjust to new supply chain constraints and to new business opportunities.