Industry Voices | Reshaping the Automotive Value Chain for the Next-Generation Mobility Era

The automotive industry is at the forefront of a major transformation, driven by the rise of software-defined vehicles. As we seize the transformative opportunities of next-generation mobility, it is crucial to assess whether the industry's supply chain is ready to meet the demands of the new era.

The industry's recovery from the global supply crisis is converging with the growing importance of semiconductors for next-generation mobility.According to BCG, chip content per vehicle will continue to grow at approximately 7% annually, reaching 1.5 to 2 times current levels by 2030. However,survey data from KPMGshows that 45% of automotive executives outside China express extreme concern about semiconductor access.

Challenges and Risks Facing the Automotive Industry

Flex's recent analysis of supply chain trends, along with our proprietary cross-industry data (from theJoint Risk Managementapplication, which leverages AI/ML and information on 5 million components), shows that the automotive industry's supply chain risk score is more than twice that of other industries.

To more clearly reveal the challenges of the automotive industry, it is useful to draw an analogy with the AI-driven growth of the hyperscale data center industry. Both industries are undergoing technology transformations driven by high-performance silicon, reshaping their respective landscapes.

The rapid adoption of generative AI is driving up demand for hyperscale data centers, with McKinsey predicting a compound annual growth rate of 10% to 12% through 2030, with key players including Google, Microsoft, Amazon, and Meta. The power requirements of typical data center racks have significantly increased, from the current 16 to 20 kilowatts, potentially soon rising to 250 kilowatts.

The rise of software-defined vehicles follows a similar trajectory.BloombergNEFestimates that for electric vehicles equipped with L4-level highly automated driving, computing hardware can account for up to 46% of power consumption, compared to just 5% for L3 systems. Both software-defined vehicles and AI data centers require new architectures to manage the demand for scalable, powerful computing—which also requires us to rethink the impact on the supply chain.

Our data points to the automotive industry lagging behind the data center industry in several key areas. Although we see some automotive customers advancing supply chain resilience initiatives, overall execution has not yet scaled, as reflected in risk scores.

In a side-by-side comparison of 90,000 components from data center suppliers and 70,000 components from the automotive industry, the following metrics show the most significant gaps:

• Stockout risk (25% higher): Uses real-time distributor data to check whether current inventory can meet component demand.
• Availability risk (15% higher): Measures historical data of similar components in the same commodity category to predict the likelihood of future shortages.
• Lead time risk (10% higher): Measures the volatility of lead times for different components within the same commodity category.

Learning from Cloud Industry Supply Chain Best Practices

We believe the industry can learn three key levers from the cloud industry to make substantial progress in building resilience: regionalization, multi-sourcing, and collaboration. While these solutions are not new to the automotive industry, the data shows that we are not executing at a pace sufficient to avoid the next supply crisis.

• Regionalization: Manufacturing within regions is becoming a fundamental requirement to address business continuity risks such as supply chain disruptions, tariffs, and geopolitical tensions. Regionalization is not just a defensive strategy; it also brings benefits such as faster response to regional customer needs and reduced carbon footprint.
• Multi-sourcing: Our data shows that the multi-sourcing rate in the automotive industry is less than half that of other industries. The impact of this lack of multi-sourcing is evident when comparing the enterprise computing racks of leading hyperscalers with the central computing models of global OEMs—automotive products have 35% higher availability risk. Maximizing intelligent multi-sourcing strategies in the bill of materials can enhance automakers' agility and resilience, thereby reducing production line stoppages, securing competitive pricing, and accelerating time to market. While there may be upfront costs and investments, the benefits far outweigh the drawbacks, acting as insurance for automakers.
• Collaboration: Just as data center companies have accelerated the innovation curve through evolutionary collaboration with their supply ecosystems, automakers must do the same. The automotive ecosystem needs to accelerate collaboration at an earlier stage—years in advance, not months. Collaborating early in the product development cycle will help ensure on-time launches, supply chain readiness and robustness, and enhance our ability to respond quickly to market changes for scaled delivery.

Forging a Successful Future Together

The automotive industry is at a critical juncture in preparing for next-generation mobility. To seize this unprecedented market opportunity, the entire industry must work together as an ecosystem to build a more resilient automotive supply chain, as no single player can cross the finish line alone. By adopting best practices from other industries, such as regionalization, multi-sourcing, and collaboration, we can reshape the automotive supply chain and realize the vision of next-generation mobility.

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