Auto supply chains brace for a very different future

A new era of issues is roiling supply chains. Products and technologies are changing. Different manufacturing imperatives are rising. Material needs are updating. And new suppliers are entering the business as automakers rethink their future supply chains.

For a glimpse into how fundamental the coming changes are, consider just one supplier: Novelis.

The Atlanta aluminum supplier traces its roots to Canada and England, where it once produced parts for the fabled British World War II Spitfire fighter plane. Today, Novelis is a subsidiary of Indian aluminum, copper and metals producer Hindalco Industries Ltd. It is a world giant in aluminum, figuring large in the beverage-can business while also supplying parts to automakers in multiple markets.

But these days, Novelis sees even bigger opportunity in North American automotive, so it is investing in the U.S.

Forecasting firm Market Research Future anticipates that as automakers electrify and compete to improve battery range, the push for lighter-weight materials for vehicles and components will spur aluminum demand. The firm forecasts automotive aluminum will grow at a compound annual rate of 8.5 percent through the end of this decade, reaching $133 billion in revenue — an increase of $78 billion from 2019 levels.

But how to create a U.S. automotive aluminum supply chain?

For Novelis, first came an investment in new mill capacity. This year, Novelis launched a project to build a $365 million recycling center in Guthrie, Ky., that will give the supplier a site for sheet ingot casting, shredding and recycling with annual capacity of 240,000 tons to feed into an adjacent automotive finishing plant.

Next came an even bigger investment. In May, Novelis committed $2.5 billion to build the first new, fully integrated aluminum mill in the U.S. in 40 years, a project in Bay Minette, Ala., that will hire and train 1,000 workers and supply Novelis' other mills.

But its expanding supply base will also require some new thinking. The mills will need to be able to ship materials back and forth for work, requiring commitments from U.S. rail services. The industrial operations will also have to meet Novelis' internal goals on reducing its carbon footprint, and that in turn will require the producer to rely heavily on a stream of aluminum scrap coming back for recycling, possibly arriving to south Alabama through the nearby Port of Mobile. Novelis intends to work with automakers and even consumers to reclaim old clunkers that it will rip apart with new tooling to sort out aluminum scrap.

At the heart of these plans is a phrase sure to be in wide use in this decade: "the circular economy." The interest in recycling and recovered materials is growing as the industry rethinks the future. Novelis also wants its local utility provider to provide factory power from cleaner renewable sources than in the past — a wish other manufacturers are also making of their utilities and something that is sure to have implications for future production sourcing decisions.

"We generally see the industry demanding that kind of bold initiative," Tom Boney, president of Novelis North America, told Automotive News. "They want to see courageous steps and a focus on carbon neutrality."

The auto supply chain is at an inflection point: For the past few decades, suppliers and their automaker customers outsourced manufacturing jobs, often to companies in low-cost countries. What the industry is now witnessing is a reversal — a large-scale reinvestment in fundamental manufacturing, such as Novelis' projects.

This month, a company with a name largely unknown to the auto industry, USA Rare Earth, unveiled its plan to put a $100 million plant in Stillwater, Okla. That plant will produce a component that automakers have barely mentioned in recent years: permanent magnets.

High-performance permanent magnets of different sizes are critical to electric vehicles, as well as to new-age military hardware and cellphones. But according to Thayer Smith, USA Rare Earth CEO, U.S. production of permanent magnets has gone extinct, and 100 percent of U.S. consumption now comes out of overseas factories — mostly in China.

"And this is the situation as we anticipate a 300 percent increase in demand for them due to the shift to electric vehicles," Smith marveled to Automotive News. "Our company's mission is to build a secure domestic supply chain."

How far do future auto supply chain considerations go? Smith and his company have been contemplating that question.

He explains that to make his permanent magnets in Oklahoma, he needs a special oxide that his company happens to extract from a large rare earth mine that it controls and operates in West Texas, called Round Top.

Round Top is an ancient volcanic bed that turns out to be a source of 22 rare minerals that the U.S. government has deemed critical to national security. Among them is a silvery metal called gallium. The identity of gallium is likely a question many in the auto industry missed on a long-ago high school exam. But gallium demand was modest, and it didn't much matter to suppliers.

Now it matters.

Gallium is a superconductive material that is expected to be vital to next-generation semiconductors — a vehicle component that has unexpectedly caused global industry turmoil for the past two years.

In the automotive supply chain of the future, such unfamiliar objects and materials will loom large.