Automakers stumble on sustainability, accelerate ‘nearshoring’: report

While automotive organizations now feel more confident to tackle future supply chain disruptions, the supply chain crises from the past few years have taken their toll and diverted their attention away from sustainability initiatives.

In September 2023, the Capgemini Research Institute released a report—The automotive supply chain: Pursuing long-term resilience—which said that supply chains are still transforming due to their complexity and evolving factors: the acceleration of electric vehicle (EV) production, the new regulatory and government policies, and the adoption of more software-based features like advanced diver assistance systems (ADAS), increasing the demand for semiconductors.

Sustainability efforts are faltering in the automotive supply chain

Successive supply chain crises have sapped automakers’ time and diverted focus and investment away from sustainability initiatives. Consequently, sustainability is not currently considered a priority for many of them, with only 37 per cent of respondents stating that issues such as carbon footprint management and environmental risk influence supply chain decision-making.

Investment across the industry reflects this trend, and while original equipment manufacturers’ (OEMs) total investment in supply chain sustainability is on par with the previous year, suppliers’ annual investment has significantly reduced by 17 per cent.

While sustainability and circularity are key components for building a more resilient supply chain and to future-proof operations, the scaling of circular-economy initiatives has been delayed due to a shortage of suppliers of recycled materials (and of the materials themselves).

Capgemini said that automotive organizations need to balance sustainability and circular economy with factors like cost and affordability. According to the report, digital solutions can help address this delicate balance between these various competing factors.

New supply chains for semiconductors and EVs to accelerate ‘nearshoring’

A global re-orchestration is underway as procurement from offshore locations fell by 22 per cent in the past two years. The report finds that automotive organizations expect procurement from offshoring locations to reduce by a further 19 per cent by 2025, as eEV production surges and the fabrication of key electronics components relocates.

Driven by a surge in efforts to deliver software-based features and services, the average proportion of vehicle value attributed to semiconductors and sensors increased by 51 per cent over the past two years. This is expected to increase by a further 46 per cent between 2023 and 2025.

But only half of OEMs consider the current supply of semiconductor components as secure. Of those surveyed, 70 per cent said most of the supply is currently being obtained from China, Taiwan, Japan and Korea. In a bid to achieve a greater level of supply security, OEMs are investing in alternative supply methods and moving away from Tier 1 and 2 suppliers. Similarly, OEMs have secured only three years of EV battery raw materials on average.

The Capgemini Research Institute surveyed 1,004 senior executives from leading global automotive organisations from across 10 different countries, during June and July in 2023. These organizations are composed of 449 automotive OEMs with more than US$1 billion in annual revenue and automotive suppliers from across 10 countries with annual revenue above US$500 million.