Automotive Industry Adapts Supply Chains for Resilience Amidst Disruptions, Says Capgemini Report

Offshore Procurement Drops as Electric Vehicle Production Soars, Sustainability Efforts Falter, and Semiconductor Supply Worries Loom

In a recent report titled “The automotive supply chain: Pursuing long-term resilience” from the Capgemini Research Institute, significant insights into the transformations within the automotive supply chain have been unveiled. Automotive organizations are increasingly confident in their ability to combat future disruptions, but the path to resilience involves substantial changes.

Transformative Shifts in Supply Chains

Automakers have been compelled to reconsider, restructure, and refinance their supply chain management strategies. Short-term stabilization notwithstanding, supply chains are evolving due to intricate factors such as the acceleration of electric vehicle (EV) production, the impact of new regulations and government policies, and the rising demand for software-based features like Advanced Driver Assistance Systems (ADAS), which has driven up the demand for semiconductors.

Global Procurement Trends

A global shift is underway, with offshore procurement dropping by 22% over the past two years. Europe is leading this trend, having reduced offshore procurement by a quarter since 2021. This is followed by the Asia-Pacific (APAC) and the United States, both of which have reduced offshore sourcing by 20% and 18%, respectively.

The report predicts that procurement from offshore locations is expected to decrease by an additional 19% by 2025, primarily due to the surge in electric vehicle production and the relocation of key electronic component fabrication.

Sustainability Challenges

Sustainability initiatives in the automotive supply chain have faced setbacks due to successive supply chain crises. Only 37% of respondents in the report indicated that factors like carbon footprint management and environmental risks influence their supply chain decision-making. Investment in supply chain sustainability has remained relatively stagnant, with OEMs maintaining their levels while suppliers’ annual investment has seen a significant 17% reduction.

Balancing Sustainability with Costs

Although sustainability and circular economy initiatives are crucial for a resilient supply chain, scaling these initiatives has been hampered by a shortage of suppliers providing recycled materials. Digital solutions are proposed as a means to strike a balance between sustainability, circularity, and affordability.

Semiconductor and Electric Vehicle Supply Chains

The growing emphasis on software-based features and services has caused the average proportion of vehicle value attributed to semiconductors and sensors to rise by 51% in the last two years, with an expected 46% increase between 2023 and 2025.

However, concerns about semiconductor supply security persist, with 70% of respondents sourcing the majority of their supply from China, Taiwan, Japan, and Korea. In response, OEMs are exploring alternative supply methods and distancing themselves from tier-1 and -2 suppliers. Additionally, OEMs have secured only three years’ worth of electric vehicle battery raw materials on average.

Inventory Building Not a Long-term Solution

While inventory building has stabilized operations in the short term, it is considered unsustainable in the long term. Holding excessive inventory carries the risk of negative effects on the operational and financial health of automotive organizations.

The Role of Data-Driven Intelligent Supply Chains

A lack of data-driven intelligent supply chains has hindered the industry’s pursuit of long-term resilience. Visibility and transparency are crucial in creating a trustworthy supplier ecosystem. Only slightly over half (53%) of respondents have mature intelligent supply chains in place, enabling data-driven decision-making with the integration of technologies like AI and data analytics.

Conclusion and Insights from Capgemini

Alexandre Audoin, Global Head of Automotive Industry at Capgemini, highlights the need for a long-term, intelligent, and data-driven strategy to build resilience and competitive advantage. Circular economy considerations are essential, not only for regulatory compliance but also to integrate new players into the supply chain ecosystem and achieve ambitious climate targets. The automotive industry is evolving rapidly to adapt to these challenges and secure its future.