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The real elements of disruption that are redefining the automotive sector and its supply chains cannot be traced back to temporary events like the pandemic but to much broader technological and economic shifts, say Deloitte experts.
The four main “forces of disruption” that have been identified in the automotive industry by Alberto Torrijos, Automotive Sector Lead Partner, Deloitte Spanish Latin America, are all born out of technological and customer responses to larger trends, specifically climate change and the digital revolution. “This is a unique moment for the automotive industry, because companies are simultaneously building their strategy around these four forces while also fighting back against the impact of short-term market shocks,” said Torrijos at the International Mexican Automotive Industry Congress (CIIAM), an event organized by INA, in collaboration with Mexico Business.
The first force identified by Torrijos is electrification. According to Deloitte’s data, there will be more than 43,000 new EVs on the road by 2025. "Electrification is evolving in a major way. It requires government legislation, technological advances and attention to consumer preferences who demand clean energy and sustainable options." Electrification is not just a matter of EV market share; it is also a question of more and more components becoming electronic in one way or another. "There is an expected increase in 2025 of vehicles with highly integrated electric components," Torrijos explains. This applies equally to traditional vehicles, EVs and AVs. Furthemore, electrification is leading to the introduction of new companies into the automotive sector. Torrijos identifies companies such as LG, Panasonic and Samsung as already making “disruptive investments” in their automotive divisions that could completely change the industry’s technological paradigms. As Torrijos detailed to MBN last year, “tech companies and even some Tier 1 companies are already building vehicle prototypes. This is a chess game between OEMs and the entire ecosystem to assure success.”
The second force is shared mobility, which Torrijos says will account for approximately one third of all miles driven by 2030 and as much as almost four fifths by 2040. Sales of individual vehicles might go down as much as 40 percent by 2040, driven by further demographic consolidation in urban centers in which consumer choice for shared mobility alternatives will be extremely diversified. “In general, the entire concept of a car as an individual property is going to be radically altered,” said Torrijos.
The third force is technological convergence: as more and more tech companies become involved in the automotive sector, in part due to electrification. The industry will be restructured by the new incentives and products that new companies will introduce to the market. “The car is now practically becoming as much of a software product as it is a piece of hardware,” says Torrijos. This will have consequences for the supply chain of each individual component. If there is a low chance of new technological features being developed for a certain component, then the market for the sale and production of that component will have a low chance for future growth. "The future of supply has new technological players developing components and hardware. These will bring a total disruption of the traditional supply chain and Mexico’s automotive industry has to prepare for that. A lower degree of digitalization will mean a lower degree of differentiation, which will mean less growth, component by component,” said Torrijos.
The final driving force behind the industry, which in a way is the direct result of the previous three, is the introduction of new players changing the structure of the automotive industry and heightening market caps. Automotive giants investing in technology aligned with these new incentives are already reaping a financial reward, according to Torrijos . "Companies that are investing in vehicle software development are creating greater value for their products while attracting investment." This will also lead to a redesign of the supply chain. In fact, Torrijos says the automotive sector will work through a supply network more than a supply chain.
"Over the next decades, electronics and planning will become critical to become more efficient, effective and prepared when manufacturing vehicles that meet customers' demands," said Xavier Ordóñez, Supply Chain Lead Partner, Deloitte Spanish Latin America. Deloitte’s study revealed that the impact of the pandemic had been quite minimal when compared to much larger contextual dynamics, in particular the question of safety and security, which has been an ongoing issue in Mexico for decades.
Ordóñez revealed that the issue of digitalization was also becoming more and more important in supply chains. "Companies are increasingly implementing ERP, electronic catalogs, EDI, WMS, CRM, among other elements,” he said. “Technology in logistics is now a requirement to be competitive. Inventory control and planning systems are a must in the pharmaceutical sector, just to give one example, especially now that public and private sectors are working on a more centralized purchasing scheme,” he said during his last interview with MBN.
Supply chains are also being impacted by the increasing relevance of outsourcing, particularly in transportation services, a subsector where independent companies were thriving in Mexico. Consolidation into much larger and “more serious” companies was not close behind, said Ordóñez. "Primary outbound transportation, secondary outbound transportation and inbound transportation are the areas with the highest percentage of outsourcing." This trend towards outsourcing has led companies to invest even more in the planning and design of their supply chains. "Companies told Deloitte that they consider forecasting and planning to be a very important area to invest in,” he said.