Automotive Supply Chain Trends 2024
The automotive industry is at a critical juncture of global competition and transformation, demanding firms to develop and implement new business strategies. Technological innovation, a critical strategy, allows firms to avoid destructive price competition and establish unique selling propositions. The automotive sector is profoundly reshaping the supply chain ecosystem and how consumers interact with automotive enterprises. Suppliers and auto manufacturers face the challenge of maintaining profitability while navigating supply chain disruptions.
A BCG report states that 80% of companies across sectors remain unprepared to address disruptions quickly and are not structured for long-term resilience. There is a dual spectrum of automotive supply chain issues and opportunities as consumer preferences shift towards immersive digital experiences, mobility and connectivity, shorter lead times, and sustainability. However, emerging technologies, including artificial intelligence (AI) and machine learning (ML), can change how the automotive industry works. Let’s explore the top supply chain trends in the automotive industry that will impact the industry in 2024.
Top Trends in the Auto Supply Chain Industry
Embracing Generative AI: According to McKinsey, AI adoption in the automotive industry could generate more than $300 billion in annual value by 2035. AI is crucial in delivering the promise of autonomous driving. The Autonomous Driving (AD)/ Advanced Driver Assistance Systems (ADAS) evolution enables vehicles to monitor the vehicle’s surroundings, assist drivers in easily collision-free driving, and make real-time decisions. Generative AI marks a shift towards more intelligent and responsive automotive technologies. Major OEMs use AI algorithms to enhance precision, productivity, and product quality across manufacturing and vehicle design. AI algorithms can detect obstacles, interpret road signs, and even anticipate potential accidents by analyzing data from sensors, cameras, and other sources.
OEMs and suppliers seeking to win in the auto industry must focus on software-driven development processes, utilizing fleet data, supply chain collaboration, and flexible, feature-rich offerings across vehicle segments, considering consumers’ varying price points.
Transition to Electric Vehicles: The automotive industry has witnessed OEMs, suppliers, and investors rapidly progressing on the EV transition. PwC forecasts that EV adoption will accelerate from 5% to 30% by 2030. Over the next decade, carmakers are predicted to invest around $500 billion in building new factories and facilities to make electric vehicles (EVs) more common. In the US alone, EV-only manufacturing plants are expected to increase from nine today to 41 by 2029.
The growing appetite to invest in the EV transition has created an ecosystem that includes vehicles and the necessary charging infrastructure, battery recycling programs, and renewable energy resources. The US EV components market (electric powertrains and batteries alone) will hit $128 billion by 2035, a significant increase from just $10 billion in 2021. Despite big bets on EVs, we’ve seen a slowdown in demand in certain markets and car manufacturers scaling back production plans. This indicates that not everybody is ready to ride the electric wave just yet.
Enhanced Vehicle Connectivity: According to McKinsey, it is estimated that about 95% of new vehicles sold worldwide will be connected by 2030. Around 45% of these vehicles will have intermediate and advanced connectivity, like access to personal profiles for digital services and ecosystems, multisensory interactions for all occupants, and intelligent decision-making. While vehicle connectivity enhances user experience, it presents challenges such as data security and privacy and compliance with regional regulations. Automakers need to strike the right balance between connectivity and protecting user information.
Many OEMs have struggled with poor connectivity developments, resulting in delayed start of production. But 5G evolution is now enhancing the in-car experience by digitally connecting the car with the outside world. The various features of connected cars serve to optimize their operation and maintenance as well as the convenience and comfort of their passengers using onboard sensors and Internet connectivity. Digitalization holds the promise to optimize automotive supply chains.
Rise in Reshoring/ Nearshoring: For OEMs and suppliers beset by delays in components and materials, the trend of nearshoring and/or reshoring is not going away. According to Capegemini, automotive organizations expect procurement from offshoring locations to reduce by 19% by 2025 as EV production increases and the fabrication of key electronics components relocates. The massive adoption of EVs will lead to increased reshoring of sourcing and procurement.
About three out of five car makers state that investment in EVs and batteries is primarily governed by regulation, geopolitical concerns, and political mandates – all likely to accelerate reshoring and/or nearshoring. As local sourcing contributes towards a cost-effective and reliable supply chain, leading European and US-based OEMs are already taking action. For example, Ford has collaborated with U.S. semiconductor chip manufacturer GlobalFoundries to reduce its reliability on overseas suppliers. Likewise, Volkswagen announced the establishment of an EV plant in Canada, and Tesla and BMW were building or expanding plants in Mexico. Auto manufacturers can consider reshoring and/or nearshoring to benefit from reduced logistics costs, improved team collaboration, and optimized lead times and supply chain costs.
Wrapping Up
Technological advancements are powering a profound transformation in the automotive industry, shaping the vehicles we drive and how we interact with them. From the dominance of electric vehicles and transformative mobility solutions to the advent of 5G and shifting business models, leaders face the remarkable landscape of evolution, disruption, and adaptation. OEMs and suppliers try to define and expand their competitive positions, but regulatory changes, evolving customer expectations, and fast-moving technology become a serious concern. New opportunities and supply chain challenges will continue to dominate the automotive industry, but Quloi’s supply chain SaaS solution helps you make the most of opportunities and navigate automotive supply chain challenges.