A decade of disruption: my takeaways from the 'FT: Future of the Car' conference

The first couple of days of the 'FT: Future of the Car' conference has seen much focus on supply chain disruption as a core issue for the automotive sector. From the viewpoint of a disputes lawyer, here are my key takeaways:-

• This is not short-term supply chain disruption: For many months lawyers have talked about supply chain issues having been caused first by COVID-19 and more recently by the war in Ukraine. However, the transition to electrification and the raw materials required to ramp up battery manufacturing to the predicted levels required mean that many are expecting battery shortages to cause supply chain disruption as far away as 2026. This leads to the inevitable conclusion that the current semi-conductor/magnesium supply chain disruption has the potential to merge into a broader battery/raw material shortage, culminating in what may be a decade of disruption.

• The supply chain disruption threatens the size of the global customer base: Supply chain disruption and disputes inevitably lead to price increases in the short term. Left unchecked, this has the potential knock on effect of leading potential customer segments to be excluded on the grounds of affordability. In the mid to long term this could shrink revenue of OEMs and the overall market. As such OEMs will work hard to find solutions to the supply chain disruption both in the short term and long term.

• One emergent solution is the ‘shortening’ of supply chains/regionalisation: It seems unusual for a sector that led the way on globalisation to be looking increasingly to regionalisation as a potential solution. However, rising logistic costs and oil prices have meant that regionalised manufacturing can be a solution not only to supply disruption but also improving profitability.

• Diversification of supply chains: My fellow partners Fiona Teague, Michelle Craven-Faulkner and I have talked in the past about avoiding exclusive agreements to strengthen a supply chain which inevitably can only ever be as strong as its weakest link. It was surprising to hear so many questions on whether OEMs should consider purchasing mining companies to try to head off shortage of mineral needed for increased battery requirements over the next decade. Even if OEMs don’t invest in mining itself there is a growing consensus that we can expect increasing efforts in solidifying supply chains through regional joint venture arrangements.

• The trend of vehicle ownership to mobility as a service and digital user experience: The long term transition from vehicle ownership to mobility as a service options, as well as increased focus on electrification, autonomous operation and digital user experience functionality, will further incentivise the sector to find solutions to supply chain issues given the requirement for exponential growth in semi conductor use and battery adoption. This is particularly so given that the industry will be competing with other sectors for many of these raw materials.