Gain momentum: Blockchain for the automotive industry | Foley & Lardner LLP
This year, sentiment has fallen to a tepid level regarding the cryptocurrency markets. For example, while some experts still believe that bitcoin can break the $100,000 mark, the price of bitcoin fell below $16,000 in November.1 But despite mixed opinions about the cryptocurrency markets, blockchain (the underlying technology on which cryptocurrency runs) has a much more favorable outlook. Analysts estimate that the global blockchain technology market will expand from the current estimated value of $3.4 billion to $19.9 billion by 2026.2
Blockchain benefits for the automotive industry
A number of industries have embraced blockchain technology, and the automotive industry can also benefit from the widespread use of blockchain technology. The automotive industry has traditionally struggled with operational problems in purchasing, tracking and payment processes. Some of the ways blockchain technology can help overcome these difficulties are:
- Trust. Blockchain increases a supply chain member’s trust in the supply chain data because blockchain data is decentralized (i.e. data is stored and shared across multiple sites, countries or institutions) and immutable (i.e, Can not be changed). In the automotive industry, where trust in data is particularly important for reasons of safety and risk reduction, blockchain can provide useful solutions.
- Efficiency. Blockchain effectively tracks every step in the life cycle of a product because all data is recorded at every step in the supply chain and every member of the supply chain can see the data. Thus, blockchain allows car manufacturers to quickly and easily identify where in the supply chain. the supply chain a deviation (e.g, a product defect or missing product quantity) has occurred. Advances in more efficient fault identification processes could cut costs for the auto industry amid rising recalls this decade.3
- Transparency. Blockchain creates transparency because all data on the blockchain is automatically recorded with a time stamp, including certain data that is not usually recorded in a traditional supply chain system (such as the steps completed in a production process or the time of a seller’s receipt of a purchase order). Blockchain technology also creates transparency by enabling end-to-end tracking (i.etraceability from one end of the supply chain to the other). In this era of electrification and autonomous driving, robust traceability mechanisms are essential in the automotive industry to prevent safety and quality deficiencies in production processes.4
Implementation challenges
Some challenges exist with regard to the implementation of blockchain processes in the automotive industry. For example, although blockchain is considered a highly secure means of data storage, some of blockchain’s other attributes (being decentralized and immutable) pose a compliance barrier with privacy regulations such as the California Consumer Privacy Act of 2018 (Cal. Civ. Code § 1798.105) (“CCPA”) and the EU General Data Protection Regulation (“GDPR”) (read more about this in Legal Implications of Blockchain in Supply Chain: What’s Law Got to Do With It?). In addition, the upfront costs of implementing a blockchain solution have the potential to be high; Hiring blockchain developers tends to cost more than the cost of traditional developers due to blockchain developers’ specialized expertise.
Auto Industry Blockchain Adoption
Some car companies have begun to pilot this new technology. In 2019, the Volkswagen Group collaborated with the technology company Minespider to trace its raw materials back to their point of origin.5 In 2020, Tesla announced a collaboration with various battery supply chain participants to implement a blockchain solution to improve transparency and traceability for nickel and cobalt.6 The BMW Group announced that in 2019 it had conducted a successful blockchain pilot product for the purchase of headlights and intended to expand the program in 2020.7 This year, BMW Group IT’s head of innovation and new technologies, Andre Luckow, reported to the Wall Street Journal that the blockchain technology programs implemented by the BMW Group have “proven fruitful in inspiring initiatives that accelerate data visibility across our value chain.”8 Luckow also revealed that the BMW Group is exploring blockchain use cases to improve the driver experience; it has partnered with the German government to use blockchain to improve driver’s license verification processes and simplify the vehicle purchase process.9 According to Luckow, in the not-so-distant future, “buying a car could be as easy as scanning a QR code.”10
Although the adoption of blockchain technologies in the automotive industry has not been rapid, some automotive companies have had success with blockchain programs, and we can expect to see a steady acceleration in the implementation of blockchain solutions in automotive supply chains.
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