EVs Dodge Oil, Yet Depend on Strait of Hormuz Passage
Bahrain’s Alba, a key player in the global aluminum industry, has announced force majeure on deliveries while reducing production by 19%. This decision follows operational challenges in shipping through the vital Strait of Hormuz. Similarly, Qatar’s Qatalum has completely halted production due to recent Iranian attacks on Gulf energy infrastructure, which impacted gas supply on March 2.
Impact on Automotive Supply Chains
Major automotive manufacturers are feeling the pinch. Toyota is set to cut vehicle production reliant on Gulf aluminum by nearly 40,000 units over the next two months. Nissan has also adjusted its schedules. The disruption affects Gulf smelters that supply not only Toyota and Nissan but also BMW, Mercedes-Benz components suppliers, and Hyundai Mobis.
- U.S.-Iran conflict has severely impacted commercial shipping through the Strait of Hormuz.
- This route is crucial for transporting automotive-grade aluminum.
- Gulf nations invested years in developing aluminum manufacturing to diversify from oil dependence.
Changing Dynamics for EV Manufacturers
The current crisis is prompting automotive and electric vehicle (EV) manufacturers to reconsider sourcing from the Gulf. Carsten Menke, head of next-generation research at Julius Baer, indicated that this situation will not eliminate Gulf sourcing but will force manufacturers to rethink risk exposure and supply chain resilience.
Japanese automakers source approximately 70% of their processed aluminum from the Middle East. Toyota’s CEO, Koji Sato, acknowledged potential procurement issues if the current situation persists.
Aluminum Pricing and Demand
Benchmark aluminum prices surged to a four-year high at $3,544 per metric ton, with estimates suggesting they could climb to $3,700. The Gulf region accounts for around 9% of global aluminum production, a significant share as EVs utilize about 40% more aluminum than traditional vehicles.
- Aluminum is essential for body frames, battery housings, and heat management systems in vehicles.
- Disruptions affect multiple vehicle subsystems simultaneously.
Resilience and Supply Chain Challenges
Emirates Global Aluminium, the UAE’s leading industrial firm outside oil and gas, sells 84% of its output as premium, low-carbon certified products. Qualifying new suppliers can take months due to stringent certification requirements, complicating sourcing efforts.
Existing aluminum stocks in Gulf factories are dwindling, creating urgency. Factories have resorted to trucking raw materials to ports outside the Strait, such as Sohar in Oman and Jeddah in Saudi Arabia. However, this makeshift solution is slower and more costly.
Over 170 container ships were trapped in the Persian Gulf amid the conflict, with major shipping lines halting operations. Re-routing around Africa has extended delivery times considerably.
Broader Implications for the EV Industry
The challenges facing aluminum supply are compounded by disruptions in sulfur shipments essential for EV batteries, potentially elevating production costs. Analysts warn that prolonged supply issues could force manufacturers to find alternative materials, impacting component designs.
The current crisis may increase the attractiveness of EVs as rising oil prices improve their total cost of ownership when compared to traditional vehicles. This evolving market landscape highlights the need for robust, end-to-end supply chain resilience in the automotive and EV sectors.
