Supply Chains

The German auto industry’s darkest secrets

CONGO-NUCLEAR
E-car revolution? A young Congo man carries cobalt, a vital component of rechargeable batteries, on his back. Source: picture alliance / AP

The young man shyly moves his T-shirt down over his belly, hiding the scars from the operation and the exit holes. His fellow South Africans call Mzoxolo Magidiwana, 24, “dead man walking” because he will never recover from the injuries he suffered when police opened fire on him and his fellow workers five years ago. Bullets tore into his stomach and his right arm no longer has any strength; nor can he walk properly anymore.

Mr. Magidiwana was one of the leaders of the 3,000 miners who went on strike on August 12, 2012 to protest poor working conditions and low pay at the Marikana platinum mine some 100 kilometers from Johannesburg in South Africa. The workers were being paid just €400 ($464) per month for back breaking work. Below ground, they had to contend with constant accidents and dust that made them ill. Above ground, they were breathing the toxic fumes coming out of the platinum smelter.

The brutal reaction of the local police, who acted in coordination with British mining company Lonmin, was later described as a massacre. They fired 400 rounds into the crowd, killing 37 workers and injuring scores more.

And, as Mr. Magidiwana says now, “German companies share responsibility for this.” He was referring to German automakers that, like companies from other countries, buy platinum from Marikana.

South African workers are putting their own health at risk to keep Germans healthy.

Lonmin supplies Western manufacturers with the metal. German chemicals group BASF is one of the most important importers and uses the platinum to coat catalytic converters, which are then installed into German cars.

So you could say that South African workers are putting their own health at risk to keep Germans healthy and the air clean in German cities. Indirectly, you could even say that German automakers share some responsibility for the deaths and suffering of workers not just in Marikana, but in mines all over the world. This is also true of other firms that process mined raw materials, such as cellphone makers Apple and Samsung.

In Congo, thousands of children mine for cobalt. In China, pollution from graphite mining affects workers and inhabitants. In Peru, protests by copper mine workers have turned violent. The products of all of these mines end up in German cars.

For a long time, automakers ignored the problem. All that mattered to them was the price and the quality of the materials. But in recent years, they’ve become more aware of their responsibilities in the matter. Roused by shocking reports of human rights abuses and rattled by the VW diesel emissions scandal, auto industry managers have set about checking up on their procurement procedures and trying to find solutions.

Daimler, BMW and VW don’t deny that there’s a problem in the supply chain and that they’ve got to face up to it.

BMW has been working on the issue since 2012, with the aim to make the supply chain’s provenance as transparent as possible. The car maker has almost achieved that with its steel supplies and has identified 30 raw materials whose provenance it wants more transparency on.

“Breaches of human rights or trespasses against environmental protection don’t fit with our principles or with the premium standards of our products and they could result in customers spurning our cars,” Ferdinand Geckeler, BMW’s sustainability manager, explains.

Mr. Geckeler says BMW has a traffic light system for raw materials without certified provenance. An external agency monitors BMW’s supply chains, assesses dealers, mining companies and countries of origin and then assigns colors. Materials marked green can be purchased without qualms. Yellow indicates that purchases are made on condition that standards are improved. Products marked red are shunned.

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Purity not guaranteed: The German car industry's supply chain looks clean but raw materials remain dirty. Source: PR

“Our goal is to have 95 percent of our suppliers on a green light. But 1 to 3 percent are still red,” says Mr. Geckeler. There is an acknowledgement that the supply chain will never be risk free.

The scandal over emissions-cheating software in VW diesel engines has alerted automakers to the risks of bad publicity.

“Environmental or social problems in raw materials production in a country far away can now make it into the newspapers here in a matter of hours,” Horst Wildemann, an economics professor and specialist in automotive logistics at Munich’s Technical University, notes. “Company bosses are really scared of something like that. The diesel scandal has shown them that public sentiment can endanger entire business divisions.”

An average German car weighs around 1,300 kilos, of which metals account for approximately one ton: steel, iron, aluminum, copper and tiny quantities of platinum. Electric cars don’t have heavy metal parts like the combustion engine but they use hundreds of kilos of raw materials for the batteries: lithium, cobalt, graphite, nickel and manganese.

The makers of smartphones have been pilloried for years for using metals that have been mined in appalling conditions. But the quantities used by Apple or Samsung are tiny by comparison with VW or Daimler. A single car contains as much metal as some 30,000 phones. Automakers flood the street with 60 million new cars ever year – that’s 60 billion kilos of metal or 1,800 billion smartphones.

If the automakers insisted, mining companies could offer raw materials produced in fair conditions. And experts estimate that such an approach would boost the price of a new car by some €200 at most. But that’s still too much for some German automakers, who are making more profit than ever before.

BMW appears to be ahead of German rivals in its attempts to monitor suppliers. Daimler has said that, given the complexity of supply chains, “a precise proof of origin is barely possible, even with a large degree of effort.”

“Germany has a special role: The rules must come from the countries where multinational companies are based.”

Michael Reckrodt, Arbeitskreis Rohstoffe, an NGO advocating fair trade in raw materials

“We are aware of the difficulties in the production of some raw materials,” was all VW had to say on the matter.

A brief visit to Liumao, China, home to one of the largest graphite mines in the world demonstrates just how difficult. The area, in inner Mongolia, produces around 66 percent of the world’s graphite, an important ingredient in the lithium-ion batteries that will power a new generation of electric cars. There are 54 kilos in a Tesla Model S electric car alone.

But the people in Liumao are paying dearly for Europeans’ desire for less polluting traffic. Workers spend eight hours a day in a darkened room with no air conditioning and insufficient protective gear, the factory run-off seeps into local waterways and poisons local crops.

Working backwards along German auto makers’ supply chains, one finds a Chinese firm called BTS, that supplies battery producers, Samsung SDI and LG Chem. A spokesperson for Samsung concedes there are environmentally damaging mines in the area but says that BTS doesn’t get graphite from them. BMW says they don’t think they are using graphite from those mines but can’t completely rule it out. Daimler and VW did not answer questions about this aspect of their supply chain. And BTS itself did not respond to enquiries.

There is no law forcing German companies to ensure that their suppliers meet social and environmental standards. That is in contrast to other European countries. This year France passed legislation requiring companies to provide information on their supply chains. The Dutch have introduced rules banning child labor from company suppliers and the British have made the most progress, with a 2015 law forcing all companies with revenue above 36 million pounds (€40.6 million) to provide annual information on whether human rights are being observed along their supply chain.

The United Nations is working on a binding agreement to try to rule out human rights abuses along the supply chain. The project was initiated by supplier nations like South Africa but it will have to be implemented by the West, and that’s where the problem lies.

Cobalt is a vital component of rechargeable batteries for e-cars. It is thought that around 40,000 children are engaged in its extraction in Congo.

Germany will introduce a rule requiring firms to state whether they’re living up to their social responsibility, but only from 2021 onwards and only for firms employing more than 500 people. A supply chain vetting process will also be introduced but only for some companies and not until 2020. So far the German government has managed to come up with a wish list but any more stringent regulations, such as those wanted by the German foreign office, have been watered down so as not to weigh too heavily on German corporates.

Auto makers themselves have said that if regulations are to be introduced they should be wide ranging, so as not to damage their own competiveness.

“If anything the EU and Germany have torpedoed the process so far,” argues Michael Reckrodt, of Arbeitskreis Rohstoffe – translated that means “working group for raw materials” – a German NGO that advocates for fair raw materials. Mr. Reckrodt says he is skeptical that things would change at all under Chancellor Angela Merkel’s new government.

After all, Ms. Merkel hasn’t done much on that score in her last 12 years in power. “But Germany has a special role: The rules must come from the countries where multinational companies are based,” says Mr. Reckrodt, even as he acknowledges that the process will take years.

Companies using raw materials with dubious provenance have their own ways of trying to improve things. A common strategy involves not cancelling contracts with slightly dubious suppliers, instead putting commercial pressure on them to change their ways.

Members of the mining community walk near crosses placed at a hill known as the “Hill of Horror”, where 43 miners died during clashes with police last year, during a strike in Rustenburg
Members of the mining community walk near crosses where miners died during clashes with police during a strike at Lonmin's Marikana platinum facility in in South Africa. Source: Reuters

For example, Hamburg company Aurubis produces more than a million copper cathodes every year that end up in German cars. And the firm makes clear demands on suppliers when it comes to human rights and working conditions. But, as the company also explains, when there are infringements there’s not much they can do to pressure the mining companies because they use less than 4 percent of the global supply of copper concentrate. If Aurubis broke off their contract, then the copper would just go to other manufacturers who don’t make the same demands, they conclude.

Another supply chain issue has come out of the hype around electric cars. Over the last 12 months, the price of cobalt has doubled to more than $60,000 a ton because it is a vital component of rechargeable batteries. Congo is one of the biggest suppliers of cobalt and it is thought that around 40,000 children are engaged in its extraction.

A Chinese company, Huayou, is one of the biggest sellers of cobalt and one of their managers reports that the company is doing its best to proof suppliers and avoid child labor. Huayou is doing something but, as the manager then admits, they cannot guarantee that all of their cobalt is completely free of child labor.

German chemicals giant BASF says it doesn’t want to cut ties with Lonmin, the company that South African miners were protesting against at the Marikana platinum mine. Instead BASF is setting certain standards that Lonmin must adhere to. If the mining company doesn’t improve, “we reserve the right to terminate the cooperation,” a statement from BASF says.

Lonmin has apologized for the massacre, built homes and set aside 30 million pounds ($39.5 million) to improve working conditions. Wages have been increased and BASF has undertaken audits and paid for a fire brigade at the plant. Still, the workers continue to do eight-hour shifts underground, unable to stand up and without any breathing equipment. Water is used to keep the dust down.

Ask the South African miners here whether anything has improved and they say the drills are quieter now.

Ask them what gives them pleasure and they have only one answer: Pay day.

A version of this article originally appeared in Handelsblatt’s sister publication WirtschaftsWoche. It was prepared by writers in Frankfurt, South Africa, China and Brazil. To contact the authors: Melanie.Bergermann@wiwo.de, simon.book@wiwo.de, alexander.busch@terra.com.br and martin.seiwert@wiwo.de

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