CASE Mobility is Transforming the Supply Chain

The pandemic and the growing adoption of connected, autonomous, shared and electric (CASE) vehicles are disrupting global supply chains, affecting the main suppliers of many manufacturing sectors including the automotive industry. This has pushed the industry, especially suppliers, to consider the technological and regulatory landscapes and consumer preferences to develop realistic models to streamline EV adoption in key markets.

The road to mainstream EV adoption may be lengthy, as these vehicles represent only 2 percent of all global vehicles. However, the long vehicle development cycles and lead times mean that important decisions and investments are already being made. According to PwC, auto companies continue to invest heavily in the technologies that will power the vehicles of tomorrow, even though they are unlikely to see returns on those investments anytime soon. So far, Reuters explains, automakers have spent US$90 billion in EV-focused research and development.

Despite the challenges, the shift to CASE vehicles is already underway at a fast speed. “Modern cars have some level of autonomy and that is impacting the value chain,” said Jeronimo García De Brahi, Co-founder and CEO, Disruptive Matters. Supply chains are becoming complex, with more incumbents, and must be supported by policies, government regulations and sustainability to operate correctly, said García De Brahi.

Mexico’s strategic partnership with its northern neighbors through the USMCA gives the country an opportunity to move from a globalized supply chain to a local, regional supply chain. The pandemic highlighted the fragility of global supply chains, especially when they depend on materials and components manufactured on the other side of the world. The chain can always break at the weakest link but it is worse when it breaks far from where a part or vehicle is assembled. When this happens, “it becomes a complicated problem that is expensive to solve,” said García De Brahi.

This is causing manufacturers to regionalize production to have their suppliers closer to their manufacturing plants. As a result, “we are expecting nearshoring in the North American region and [companies] are choosing Mexico in many cases as a destination for their production and supplies,” said José Luis Treviño, Vice President, Strategic Planning and Corporate Development, Metalsa.

This partly explains why the production of auto parts is growing despite the drop in the production of vehicles. The other reason is that an increasing number of parts used to produce vehicles in the US are being manufactured in Mexico. For that reason, Mexican manufacturers could benefit from being more ambitious and incorporating more capabilities, said Daniel López, Co-Founder and CCO, E-DRIVE.

For CASE manufacturing, for example, “electrification is hard to find and forget about a provider that integrates AI with energy and other significant components,” said López. To succeed in CASE manufacturing, Mexico needs to take advantage of its strategic location, regionalize its supply chain, strengthen its automotive clusters and reskill its workforce in the supply chain, he added.

The interior design of CASE vehicles also needs to evolve because drivers are looking for more. “They want more comfort, smart mechanisms, luxury, lighting, smart cabins or less heavy cars,” said Lourdes Cobos, General Manager, Yanfeng. The Chinese automotive supplier works with local interior designers to develop models that fit every country it works in. “For the company, it is very important to work with Mexican talent, so we made the commitment to always retain our talent,” said Cobos.

 Retaining talent has been part of the foundation of Mexico’s successful automotive industry, which has also benefited from its location and strategic alliances, said Tarsicio Carreon, President, Chihuahua Automotive Cluster. “To keep this position, nurturing these factors is fundamental for Mexico and its automotive companies,” he said.

CASE vehicles still pose a challenge for the Mexican industry. “From passenger vehicles to public and commercial transportation, we have to begin investing in our own charging technology and networks,” explained López. Tesla, said López, invested in charging infrastructure and now has super-fast charging facilities. Mexico has over 4,000 free charging stations but it needs more, he added. Moreover, the sector needs to simplify the charging process to make it easier for people to join the electrification wave.

To summarize the changes Automotive Change Value Chain is going through, García De Brahi group them in these five groups:

1. Branding, Product Development and R&D: Debranding, OEMs becoming technology developers, costs going down

2. Procurement and Supply Chain: Appearance of Tier 0.5, Consolidation of Tier 1 and 2, Increasing importance of new components (semiconductors, lithium, nickel)

3. Manufacturing and Assembly: Gigafactories to supply each block, reinforcing the glocalization trend

4. Sales & Distribution: E-commerce leading the way and Dealerships decreasing in number

5. Aftersales: Over the air updates and less physical intervention