Automotive Supply Chain Trends 2024

Key Challenges for the Automotive Industry in 2024

As everything becomes digitized, the explosion of new technologies, artificial intelligence, and the need for more data enhancements have become prevalent. The concerns remain the same.

Will customers find new ways to shop for vehicles online? Will traditional dealership models endure the evolving consumer preferences and technology advancements? How will automotive brands innovate fast enough to meet the changing demands of tech-savvy customers and address the potential challenges? How will regulatory changes impact production development? These questions underscore the complexities facing supply chain management in the automotive industry. Let’s dive into the stability concerns and challenges that will likely persist this year in the car manufacturing supply chain: 

Labor Relations: Balancing shifting skill requirements, workforce needs amid automation, and potential labor disputes.

Inflation: Managing costs and pricing strategies on raw materials, labor, and operational expenses.

Competitive Pressures: Intensifying competition from traditional automakers, tech companies, and new players due to innovation.

Environmental Impact: Implementing sustainable manufacturing practices and addressing concerns over carbon emissions and resource depletion.

Supply Chain Disruptions: Managing disruptions caused by global events such as natural disasters, pandemics, and trade conflicts.

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 specific markets and car manufacturers scaling back production plans. This indicates that not everybody is ready to ride the electric wave 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, delaying production starts. However, the 5G evolution now enhances the in-car experience by digitally connecting the car with the outside world. The various features of connected cars use onboard sensors and Internet connectivity to optimize their operation and maintenance and the convenience and comfort of their passengers. Digitalization holds the promise to optimize automotive supply chains. 

Collaborative Supply Chain Models: Collaborative partnerships between automotive companies and suppliers have become increasingly common, enabling shared resources and innovation, risk-sharing, and joint problem-solving to address complex supply chain challenges and achieve shared goals. A collaborative supply chain model emphasizes mutual trust, transparency, and open communication to foster long-term relationships. 

For example, Toyota, a leading automobile manufacturer, is known for successfully implementing collaborative supply chain practices. The Toyota Production System (TPS) works closely with suppliers to implement just-in-time (JIT) inventory practices, Kanban technology, and quality assurance processes. Toyota has achieved remarkable efficiency gains through supplier collaboration, optimized lead times, and enhanced product quality.

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.  

How Quloi Helps

Quloi strives to create efficient and robust supply chains that can withstand future disruptions by facilitating seamless communication and information sharing, allowing for better alignment and anticipating demand fluctuations. With data-driven decision-making and a focus on continuous improvement, automotive organizations can build a resilient, adaptable, and competitive supply chain. Book a Demo to learn how Quloi helps organizations be more resilient and flexible in the ever-changing automotive sector.

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