Wednesday, September 27, 2023
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Auto Industry in 2022: Will more companies enter the chip market?

While 2022 is likely to bring with it more of the same challenges that bombarded automakers in the past year, there will also likely be some new surprises as well.

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While 2022 is likely to bring with it more of the same challenges that bombarded automakers in the past year, there will also likely be some new surprises as well.

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Following two years of intense market disruption, automotive manufacturers and suppliers are eager for glimmers of positive news. Indeed, some regions and vertical segments are mitigating risks and addressing shortages with agile shifts and creative strategies. They provide pragmatic best practice models—and inspiration for the organizations still struggling with heavy revenue losses from the microchip shortage. Undeniably, 2021 was a difficult year for manufacturers, OEMs and suppliers. As we turn to 2022 to absorb and adapt to the many COVID-related blows, some predictions seem safe to bet on, including:

The disruption isn't over

The aftermath of the COVID-19 pandemic will be likely be felt for years, requiring all business leaders to remain vigilant to market changes and hyper-sensitive to providing safe work environments for their employees. Workforce attitudes about vaccines and testing policies will likely evolve as this divisive topic percolates with each new medical study released. Employee resistance and legal and political challenges to mandates could influence the ability to keep plants running at full capacity. While some back-office tasks can be done by remote workers, assembly line tasks can't be done through a meeting. Change is here to stay, and automakers and suppliers need to act now to be well-prepared.

Product safety must remain a priority

We can't blame every industry issue on COVID. Massive changes were on the horizon long before the pandemic hit: The transformative impact of CASE (Connected, Autonomous, Shared and Electrified), along with the demand for greater sustainability, better fuel economy, and increased safety cannot be overstated. Recalls continue to plague the industry. Innovation, particularly around , has taught some difficult lessons about the need for careful testing before rolling out new technology and components.

The fire risk posed by lithium-ion batteries is just one example. This issue has been analyzed from all sides, with reforms and safeguards put in place. A key takeaway, though, is that the impetus to innovate needs to be balanced against the need for caution and scrutiny. Fortunately, product lifecycle management solutions can help automakers and suppliers manage the entire process, from Research and Development stages to testing validation and engineering change management.

Agility will be a priority

The automotive industry has experienced several paradigm shifts recently, primarily driven by the seemingly unstoppable C.A.S.E. (Connectivity, Autonomous, Sharing/Subscription and Electrification). This impacts every aspect of the industry – from product design and development to manufacturing, distribution, sales, service, talent, and the aftermarket. The user experience has undergone a major transformation as well, with even mid-priced vehicles now equipped with myriads of luxuries.

Upscale perks that are becoming standard fare include heated seats, camera-assisted parking, and collision avoidance sensors. These types of major changes demand unprecedented levels of business agility and correspondingly agile technology solutions. Cloud-based solutions—fast and easy to implement—provide flexibility and scalability in launching new business entities and models, new operational processes, and new partnerships.

More companies will enter the chip market

Modern vehicles utilize a wide array of microchips, regardless of the trim level, from basic to top of the line. Unfortunately, even though we're approaching the end of 2021, microchips are still in short supply. I expect the chip shortage to persist into the next calendar year to a meaningful degree and is a significant hurdle the industry needs to address. Unfortunately, there are no quick or easy answers. Some OEMs are taking matters into their own hands bringing microprocessor production in-house. While this may mean more control, many experts consider this economically impractical as automotive chips are typically low-value, commoditized items and investments in chip production—which is extremely capital—intensive – can take years to break even.

The European Union, too, wants to get in the chip business, hoping to claim 20% of the world's semiconductor production by the end of the decade. Organizations will need to anticipate the changes, and act sooner instead of later to ensure adequate supply. Alliances and collaborative partnerships will become more important in 2022 as organizations will partner to extend their buying power. Ford's recently-announced partnership with GlobalFoundries is a case in point. Cloud-based tools will help manage these multi-enterprise relationships.

More emphasis on regional hubs and self-reliance

The shortage of chips is causing some outspoken industry critics in the U.S. to suggest the country should be self-sufficient, not relying solely on other nations for critical parts and components. The topic will undoubtedly continue to get screen time on news sites and social channels into the coming years, hype cycles influenced by election years and trade agreements. Stay tuned on this one. It's going to remain a hot topic, but any resolution is unlikely to happen in 2022.

Enhanced visibility will be a lifesaver

For forward-thinking manufacturers, the software will save the day. Again. While manufacturing microchips may not be the answer for every organization, turning to technology to help manage the supply chain is certainly a tactic every automotive OEM and supplier can employ. Tools for supply chain planning can help manufacturers monitor inventories, deliveries, shipping routes, expected deliveries—and the impact on sales orders if a delivery is delayed. While visibility into the problem may not make the components arrive any faster, being aware of the issues helps prepare, find alternatives, and set realistic expectations among customers. It makes a difference.

Business intelligence will turn chaos into actionable strategies

As companies set recovery strategies, data insights will be essential for making sense of the changes, and of the financial impact those changes bring. Many organizations are entering uncharted territory, unable to rely on previous strategies or historical plans. New reports will be needed. New KPIs must be determined. New ways of anticipating and measuring the impact and predicting outcomes will be required—not just at the C-level but throughout the organization. Augmented intelligence, artificial intelligence, machine learning, and digital platforms will be critical. Only advanced, modern solutions will be able to tackle the challenges. Increasingly, organizations will realize the value of smart analytics and machine learning/AI and will invest in solutions with these features built-in.

Talent acquisition and retention will be elevated

Recruiting and retaining talent will be part of the strategic agenda in order to compete and thrive in 2022 and beyond. All roles have evolved. Soft skills like team collaboration, problem-solving, data management, and customer service, will be just as important as the ability to operate machinery. Furthermore, as CASE transforms the industry, and as Industry 4.0 and IoT drive the fusion of IT and OT (operational i.e. shop floor technology), digitally fluent talent will rapidly become the cornerstone of competitive advantage.

The automotive industry is in direct competition with Silicon Valley for the best and brightest, and organizations need to address a shortage of right-skilled workers, including software architects and developers, data scientists, and other IT professionals. In addition, there is a ‘silver tsunami' of skilled workers who are retiring, in many cases taking years of knowledge with them. The ability to capture and institutionalize this (often tribal) knowledge is also vital in order to maintain forward momentum. Automotive employers will need to offer technology courses and training to help reskill the existing workforce and attract recruits.

Recent graduates entering the job market expect to see easy-to-use software, much like the solutions they use in their day-to-day lives. Organizations will need to provide an elevated employee experience to attract and retain the best and the brightest and position themselves to win in the new normal. Talent solutions that incorporate leading practices and provide these rich employee experiences will help organizations recruit, train, and retain the right employees and match them with appropriate roles to maximize their potential, build successful careers, and grow in value to the organization.

Sustainability will continue to grow in importance

Environmental ramifications will continue to have a significant impact on industry trends and direction. ‘Circular Industrial Sustainability' and ‘Carbon Neutrality' are two terms that have entered the manufacturing lexicon and are appearing with increasing frequency in discussions about the future direction of the automotive industry, and EVs are seen by some as a panacea for all that ails us.

However, it's important to note that EVs present their own set of environmental challenges, among them, the high energy consumption used to manufacture them (especially in the case of aluminium), the highly-destructive and toxic mining of critical rare earth elements, the looming problem of massive numbers of batteries, filled with toxic chemicals, that will need proper disposal, and the increasing demand for (largely fossil-fuel generated) electricity, at least in the US.

A broader, end-to-end view of the issues and challenges – instead of a fixation solely on tailpipe emissions – is needed to resolve these and other challenges, along with good faith negotiations and fact-based conversations between different and often widely-divergent political and socio-economic interests. The ability to effectively gather and mine data, from a wide variety of sources both within and outside the industry, to inform these decisions will be an important enabler in this regard.

Final thoughts

While 2022 is likely to bring with it more of the same challenges that bombarded automakers in the past year, there will also likely be some new surprises as well. Organizations must be prepared for the known challenges, but perhaps more importantly for the unforeseen ones. If there's one thing we've learned over the past year and a half, it's that we can't take ‘normal' for granted anymore. Resilience, agility, adaptability and collaboration are the new coins of the realm.

The author is Industry Principal, Automotive, . Views are personal.

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