A sustainable future for Mercedes-Benz suppliers

As the materials requirement for EVs and hybrids causes extraordinary changes in the global commodity landscape, Lawrence Davies talks to Sabine Angermann, Head of Purchasing and Supplier Quality for Raw Materials and Strategy at Mercedes-Benz Cars and Renata Jungo Brüngger, Member of the Board of Management of Daimler about responsible sourcing and promoting sustainability in the supply chain

As EVs, hybrid and fuel cell vehicles increasingly figure in the model plans of every vehicle maker so concerns are being raised about the new groups of raw materials needed to power their drivetrains.

Most electric vehicle batteries are lithium based and utilise a mix of cobalt, manganese, nickel, graphite and other primary components. While some of these materials require more prospecting and difficult ‘mining’ operations than others, none are classified as ‘rare earth metals’.

Carmakers cannot and in the main are not treating these materials, as they might steel, aluminium or oil, as universally harvested commodities with established, stable and well-managed supply chains. There are some important issues surrounding battery production materials that must be acknowledged and addressed. According to various academic sources, over 60% of the global supply for cobalt comes from the Democratic Republic of Congo (DRC), which has a poor human rights track record and this region is not alone in being of concern; for many years, various international organisations have denounced the exploitative labour practices involved in cobalt production in many regions.

Daimler’s drive for ethically-sourced elements
Renata Jungo Brüngger

Renata Jungo Brüngger

In Daimler's recent statement about this area, it states that there will be an offensive for a sustainable raw material supply chain and that “Daimler AG will join forces with associations, organisations and competitors in a number of initiatives”. There is no mention of suppliers in the OEM’s statements and I ask Renata Jungo Brüngger about whether Daimler has initiatives to help suppliers establish and maintain sustainable and ethically correct supply chains. “We want our products to contain only those resources and materials that are mined, manufactured and produced in a sustainable manner,” she says, adding: “This means that our suppliers play an important role in ensuring our sustainability expectations along our supply chain. In our ‘Daimler Supplier Sustainability Standards’, we have defined the sustainability requirements our suppliers must meet. Key requirements are those relating to working conditions and respect for human rights. 

“But this is just one criteria among many others. We have also developed a systematic approach to intensify our activities regarding human rights: our Human Rights Respect System (HRRS). This aims to identify and avoid risks and possible negative impacts of our business activities in respect of human rights in our supply chain. With the HRRS, we identify potential risks along the supply chain, we define measures to mitigate those risks, and we evaluate the effectiveness of the measures. 

“It’s not only our direct suppliers who must operate sustainably, but the entire supply chain. On a risk-oriented basis, we take the path along all critical points, if necessary as far as the mine.”

Political dialogue and local support

It is an unfortunate fact that the governance of some of the regions in the world where lithium, cobalt and manganese are sourced may not be as robust and responsible as in more developed areas and, as the growth of electric mobility is set to place great demands on these raw materials, so there are increasing concerns about ethical and safe employment practices. I ask Jungo Brüngger whether Daimler is working with governments in the countries where these materials are mined and harvested. She reiterates the activities of the HRRS initiative. “We are active with our HRRS where we can achieve the most: at our own plants, in our supply chains and in dialogue with our suppliers,” she says, explaining that, “We also join forces with others where a common approach to sustainable supply chains makes sense, in developing common standards for example. That is why we are a member of several initiatives, such as the Responsible Cobalt Initiative and the Drive Sustainability Initiative, in which we are a lead partner. Political dialogue, for example between the EU and the respective commodity countries, is also an important factor for the sustainable extraction of raw materials.

“In addition, people must be involved locally in order to achieve significant improvements. We take this into account in our own audits, we are addressing this with our suppliers and are also exploring how we can provide meaningful local support for projects ourselves.”

China’s EV demand and increasing battery efficiency

It has been estimated that if China EV makers achieve their production goals in the next two years, they will use all of the presently available lithium and cobalt in the world. I ask Sabine Angermann how Daimler (and other carmakers and suppliers) will cope with this shortage of raw materials. She has confidence in the existing supply chain today but recognises that there may be challenges in the future. “Today, raw materials such as lithium, cobalt, nickel, platinum and rare earths are available in sufficient quantities to facilitate the transition to electro mobility,” she says, citing recycling as one element for long-term sustainability: “In the long term, however, the supply of these materials will only be guaranteed if they are degraded and recycled in reasonable quantities in an environmentally and socially acceptable manner. We have a strategy for all raw materials that we purchase directly and indirectly to secure our long-term needs. This includes long-term contracts, investments or, for example, the hedging of raw materials. In addition, we have been investing in resource-efficient battery technologies and manufacturing processes to protect the environment for years. New technologies will increase the energy density of the batteries for our future electric vehicles, and save more energy for the same volume. 

“Finally, the material composition of the lithium-ion battery cells will change. The usual mixture of nickel, manganese and cobalt could soon be a thing of the past, as the cobalt will be replaced by nickel. From 2025, so-called solid-state batteries, which do not have nickel and cobalt, could be technically proven for use in our vehicles.”

Daimler’s teams at the coal face of human rights

I ask Renata Jungo Brüngger how deeply is Daimler prepared to become involved in monitoring mining operations in developing or other nations where human rights are possibly being infringed and whether the carmaker would consider having a Daimler person on the ground at such sites on a permanent or semi-permanent basis. She speaks of the practical aspects of such initiatives. “The appropriate way to deal with this is a risk-oriented approach. With several tens of thousands of suppliers and even more sub-suppliers, we need to install a practicable system. Our HRRS enables us to identify possible risks at an early stage. Therefore, we systematically look at the entire supply chain, including mining operations, but also smelters, refineries and the service sector. When our experts find a risk in our supply chains, we look at it locally. If necessary, we go right to the mine or to a construction site, via on-site audits for example. In some cases, such as our mica supply chain, these audits are carried out by our own teams of human rights and compliance experts, together with our quality engineers. In our cobalt supply chain, we have engaged a third-party audit company with broad local experience. “This is another advantage of our Human Rights Respect System: We do not rely on ‘one-size-fits-all’ solutions, but look for the best approach in each individual case.”

Financially stable and sustainable relationships

Sustainability, as well as referring to environmental management, can also refer to the financial robustness of suppliers; their opportunity to quote for and win longer term contracts with OEMs, giving them the assurance they need to make investments in everything from buildings, plant and equipment, to more environmentally-friendly and ethically-sound processes and manufacturing. Sabine Angermann says that Daimler is thinking about this element of the sustainable supply chain and touches upon the thorny issue of longer contracts. “All of the aspects of sustainability that you mention are part of the reviews and audits that a supplier goes through before signing a delivery contract. We also oblige our direct suppliers to pass on the requirements of our sustainability standards to the sub-supply chain. We work closely with our existing supplier set as well as with new players, in close partnerships. Long-term supply contracts are based on stable relationships and can be completed over a whole production cycle. The delivery of spare parts often adds a further 15 years of supply, after the end of production.”

A changing contract landscape

I press Angermann on long-term contracts, asking her whether, with the accelerating rate of development of vehicle ranges and with new models of petrol and diesel engined vehicles being joined by many EVs and hybrids, it is more difficult to offer a supplier 'whole vehicle lifecycle' supply contracts. She says that: “Unlike the already mentioned long-term contracts, we adapt our contract terms according to the new cycles of connectivity and consumer electronic features to give our customers an attractive range of vehicles for our classic [petrol and diesel] engine vehicles as well as EV/hybrid vehicles,” adding: “Therefore we work with traditional suppliers as well as with new players, who are known from the IT and consumer electronics industry and whom you might not expect to see in the automotive sector. We have therefore optimised, adapted and expanded our contract landscape to cover additional regulations such as data protection.”

The aluminium and steel supply chain

Aluminium is playing an increasingly important role as a lightweight design material for electric cars as it is much lighter than steel, and Daimler has joined the non-profit Aluminium Stewardship Initiative to support the implementation of an independent certification scheme for the entire aluminium added value chain. The aim is to intensify dialogue with all stakeholders in the aluminium supply chain to achieve continually measurable improvements in the areas of social affairs, the environment and responsible business management, from aluminium production and usage to recycling. I ask Angermann if this includes attempts at the price stabilisation of aluminium and does this help to prevent any ‘cartel’ type situations of price fixing. She lauds the initiative and adds that any form of anti-competitive price maintenance is excluded. “The Aluminium Stewardship Initiative is a highly ambitious initiative with the goal to improve sustainability aspects in the aluminium supply chain by developing a sophisticated design on different levels like certification schemes, coverage of the supply chain and involvement of stakeholders. With our membership we aim to foster sustainability aspects by joining this initiative. 

Sabine Angermann

Sabine Angermann

“We advocate collaboration in the initiatives, whilst strictly following antitrust laws as a matter of principle. This means that topics such as pricing are absolutely excluded.”

I ask her if these policies are similar in the area of steel supply. “As we believe in specialised initiatives which generate in-depth knowledge for certain areas we also joined an initiative which focuses on steel,” she says, mentioning The Responsible Steel Initiative: “This initiative is pursuing greater transparency in the supply chain, from mines to steel product, and, by developing a certification scheme, will provide new levels of reassurance of the right social and environmental standards. 

“Also here we advocate collaboration in the initiatives, whilst strictly excluding topics such as pricing.”

Suppliers that win long-term contracts that are heavily-dependent on aluminium (or high-strength and other steels) could benefit from being included in Daimler’s considerable economies of scale in buying materials but Angermann see this as a bridge too far in most instances. “Based on different market and raw material specific requirements, there is no static approach,” she says but adds: “We react individually to the dynamics and the general conditions of the respective market. So there are markets where we buy steel for the manufacturing industry. In most markets, however, the supply chain is responsible for delivering raw materials itself.”

Composites and recycling

We have not yet discussed composites, carbon fibre and other super-lightweight materials; I point out to Angermann that there is a shortage of supply of these advanced materials in many parts of the world, areas where Daimler builds vehicles and where its suppliers are located. I ask her what Daimler can do to help this situation, a situation that can only become more critical as the drive for lightweighting vehicles continues to accelerate. “As with lithium and cobalt, we currently do not see any shortage in the field of lightweight materials,” she says, adding that, “Recycling is a key issue here, too, in order to be able to speak of sufficient security in the long term.”

I ask Renata Jungo Brüngger how advanced she thinks Daimler is in recycling, particularly in aluminium. She speaks of some particular policies in this area. “The careful use of resources is an important element of our sustainability strategy. For this reason, one of our development focuses is on keeping our demand for natural resources as low as possible. In addition to the economical use of resources, the processing of components and the recycling of raw materials play an important role. For example, we have set ourselves the goal of reducing the primary use of raw materials for electric drive systems by 40%, by 2030. Aluminium is playing an increasingly important role as a material in the lightweight construction of electric cars because it is much lighter than steel. 

“With the Aluminium Stewardship Initiative, it is our aim to achieve measurable improvements in social, environmental and responsible business practices - from the production of aluminium to its use and recycling. In principle, we rely on our own instruments where we can become active ourselves. And we also join forces with others where a joint approach makes sense, with industry-wide standards for example.”

Where steel is concerned, there are fewer issues with the work-hardening and embrittlement of the recycled material than with aluminium and so steel and iron service exchange parts have a greater presence in Daimler’s recycling plans as she tells me: “Yes, within the framework of the Responsible Steel Initiative, we are committed to transparency in the supply chain and to reducing CO2 in production. With recycling, we focus above all on the resale of tested and certified used parts and on the refurbishment of so-called exchange parts.” 

Premium ambitions for the supply chain

With the challenge of conflict minerals and other materials that can be the product of exploitative mining and other labour, I ask Jungo Brüngger if is it time for new official standards to be implemented with Daimler’s supply base, standards that can guarantee, as much as is humanly possible, the ethical and sustainable exploration and exploitation of these resources. She speaks of the importance of implementing the right standards and maintaining a constant dialogue with the supply base. “We aim to have sustainable supply chains, in extraction as well as in processing and production. That’s why we are continually further developing our Daimler Supplier Sustainability Standards. We are making progress with this issue also in initiatives such as Drive Sustainability and the Responsible Cobalt Initiative (RCI). In the RCI, we are currently developing new auditing standards for the cobalt supply chain. But such standards also have to be implemented. This is why both training and intensive dialogue with our suppliers are central components of our Human Rights Respect System.

“Furthermore, we regularly review the sustainability performance of our suppliers, also beyond Tier 1, with a risk-based approach. We have premium ambitions for ourselves and our suppliers with regard to sustainability in our supply chains.” 

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