TL/DR –
The global automotive industry is experiencing a shift in its supply chain dynamics due to geopolitical conflicts, trade barriers, and the pandemic. The industry’s focus is transitioning from efficiency to resilience, with supply chain security becoming a mandatory aspect for survival. Also, the geopolitical conflicts between the US and China, the Russia-Ukraine conflict, and the increasing focus on technological innovation are causing the industry to develop dual- and bloc-based regional supply chains to ensure resilience and compliance with regulations.
“`html
The 7th New Automotive Supply Chain Conference highlighted three major themes that dominated discussions amongst participating original equipment manufacturers (OEMs) and key suppliers: resilience, sustainability, and localization. These themes overshadowed other topics such as technological innovation and cost cutting, primarily because these have become part and parcel of China’s automotive supply chain.
A Shift in Global Supply Chains
On the recent episode of Tina’s Talk, the focus was on the global supply chains’ shift from localization to globalization, and now to geo-localization. This shift is significantly influenced by changes in geopolitical alliances, hence reshaping the structure of the global automotive supply chain.
From Technological Competition to Geopolitical Struggle
Over the past three decades, the competition in the automotive industry has been largely defined by technology and market dynamics. However, the onslaught of the pandemic, geopolitical conflicts, and the introduction of trade barriers have caused a major shift. The industry is now heavily influenced by variables such as energy security, critical minerals, key components, data compliance, and supply chain resilience. The global automotive supply chain has shifted its focus from efficiency to resilience, making autonomous and controllable supply chain security a mandatory survival strategy for both countries and companies.
Conflict in Russia-Ukraine and Its Impact on Energy and Supply Chains
The Russia-Ukraine conflict in 2022 led to a sharp decline in natural gas supplies, triggering an energy crisis in Europe. This, coupled with soaring electricity, raw materials, logistics, and labor costs, pushed automotive factories to downscale or halt production. Several companies such as BMW, CATL, Volkswagen, Continental, and Stellantis responded by implementing steps to safeguard their future operations against such crises.
As a result of the conflict, there is a shift in Europe’s industrial logic from reliance on single suppliers to a diversified and localized procurement model. Many European companies are now incorporating \”supply chain stress testing\” into their annual strategies, extending the inventory cycle for key minerals, promoting battery recycling, and focusing on solid-state battery research.
US-China Tensions and the Emergence of Dual Supply Chains
While Europe grapples with an energy crisis, tensions between China and the US are reshaping the global supply chain landscape. The 2022 US Inflation Reduction Act included new tax credit requirements for electric vehicles, effectively excluding some Chinese battery and mineral companies from the subsidy system. Furthermore, the US has tightened export controls on advanced chips and semiconductor equipment, restricting China’s access to high-performance computing for autonomous driving and AI.
In response to these geopolitical challenges, some companies have initiated a new structure for supply chains – a ‘dual-track’ system and bloc-based grouping.
The Dual-track and Bloc-based Supply Chains
The dual-track system implies one track serving the Chinese market while the second track caters to North America and Europe. The bloc-based groupings, on the other hand, are dictated by geopolitical blocs and not efficiency optimization. The major geopolitical blocs include – “US—Europe—Japan-Korea” and “China—ASEAN—Middle East—Latin America”. Emerging economies will strategically choose between these two blocs.
In light of these geopolitical influences, the ‘global supply chain’ is gradually evolving into a ‘regional supply chain’. Automotive manufacturers are setting up factories near key markets to be closer to consumers and avoid potential trade barriers. Chinese automakers and supply chain companies are transitioning from a ‘cost-driven’ model to a ‘resilience-driven’ one, making China a key pillar of global industrial security.
The Future of the Global Automotive Industry
The global automotive industry is entering a new competitive landscape defined by electrification, intelligence, geopolitics, and supply chain security. The reshaping of this landscape represents a historic leap for China from being the ‘largest single market’ to becoming a ‘core power center’.
“`
—
Read More US Economic News