A should cost model is an all-important technique for deriving and forecasting the actual cost of a product/service over the forecasted period. It serves as a competitive edge for supplier negotiations by determining the actual price for the cost components. The outcome helps procurement leaders to understand detailed fact-based cost drivers for the category.
Raw material cost accounted for more than 65% of the overall cost of EV battery manufacturing. Key raw materials include lithium, graphite, manganese, and cobalt. Among these, lithium has the highest cost share in overall EV battery manufacturing cost with 35%. Lithium price has been witnessing a significant drop since 2017 due to over-supply caused by an avalanche in Australia, the leading lithium producer. Labor cost is the key cost component of overhead costs. Trends of market correction in terms of salary are resulting in the rise of labor wage globally. However, salaries offered are based on region-centric policies. Therefore, shifting procurement and manufacturing practices to LCC countries could help manufacturers drive down the cost of labor.
Every organization and its procurement team wants to negotiate the best deal while procuring a set of products or services. Rate benchmarking uses price/cost comparison of more than one set of products/services to analyze the most efficient combination that will help the procurement team to get the optimum rate.
The type of EV battery is one of the most important aspects while analyzing the rate benchmarking of EV battery manufacturing. In our research, we have analyzed the rates of lithium-ion (Li-ion) batteries, sodium-nickel-chloride (NA-NiCl2) batteries, nickel-metal hydride (Ni-MH) batteries, and lithium-sulfur (Li-S) batteries. NA-NiCl2 are the most expensive batteries in the market. The average price of these batteries is 50%-60% higher than Li-ion and Li-S batteries. However, Li-ion and Li-S batteries have a 30% lower price to maximum charge ratio than NA-NiCl2 batteries. Moreover, the normal voltage of Li-ion batteries is 10% higher than NA-NiCl2, and Ni-MH batteries. Hence, using Li-ion and Li-S batteries will give more cost-benefit while installing it in an electric vehicle.
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Labor is one of the key cost components incurred while offering a product or service. Understanding the pricing structure of salary is important for organizations in selecting the appropriate supplier and to build a good negotiation strategy. It is also an important factor in determining whether the category under focus should be outsourced or built in-house.
Our research indicates that the Production Supervisor/Manager of LG Energy Solution, Panasonic, and Samsung SDI earn 35% higher salaries than Production Supervisor/Manager from other industry leaders like CATL and BYD. However, the YoY increment rate in such companies largely depends on KRAs.
It is cumbersome for any organization to continuously track the latest developments in their supplier landscape. Our newsletter service helps them remain updated, to avoid any supply chain disruption which they may face, and keep a track of the latest innovations from the suppliers. Outsourcing such activities help clients focus on their core offerings. Our research on the EV battery market has identified the following developments:
In September 2021, South Korea-based LG Energy Solution (LGES) and Hyundai Motor Group have started construction of a USD1.1 billion plant in Indonesia to make batteries for electric vehicles. As Indonesia has the world's biggest nickel reserves, it is expected that the country will become the biggest manufacturer of nickel EV batteries within the next five years.
In September 2021, Solid Power, a U.S.-based EV battery manufacturer, announced plans to go public through a special purpose acquisition company (SPAC) merger with Riverstone Holdings’ Decarbonization Plus Acquisition Corporation III. The combination, valued at about USD1.2 billion, is expected to close in the fourth quarter of 2021. Earlier in 2021, Solid Power established development partnerships with Ford and BMW, which will integrate the company’s batteries in future EV products.
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Component wise cost break down for better negotiation for the client, highlights the key cost drivers in the market with future price fluctuation for different materials (e.g.: steel, aluminum, etc.) used in the production process
Offering cost transparency for different products / services procured by the client. A typical report involves 2-3 case scenarios helping clients to select the best suited engagement with the supplier
Determining and forecasting salaries for specific skill set labor to make decision on outsourcing vs in-house.
A typical newsletter study by capturing latest information for specific suppliers related to: M&As, technological innovations, expansion, litigations, bankruptcy etc.
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