Get up to Speed: Blockchain for the Auto Industry

This year, sentiment has declined to a tepid level with respect to cryptocurrency markets.  For example, while some experts still believe that bitcoin could crack the $100,000 mark, the price of bitcoin slumped to under $16,000 this November.¹  But despite mixed opinions about the markets for cryptocurrency, blockchain (the underlying technology on which cryptocurrency runs) has a much more favorable outlook.  Analysts project that the global market for blockchain technology will expand from its current estimated value of $3.4 billion to $19.9 billion by 2026.²

Blockchain Benefits for the Auto Industry

A number of industries have embraced blockchain technology, and the auto industry also could benefit from the widespread adoption of blockchain technology.   The auto industry has traditionally struggled with operational difficulties in sourcing, tracking, and payment processes.  Some of the ways that 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., unable to be altered). In the auto industry, where trust in data is especially important for safety and risk reduction reasons, blockchain may provide helpful solutions.
• Efficiency. Blockchain effectively tracks every step of 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 permits automakers to quickly and easily identify where in the supply chain a nonconformance (e.g., a product defect or missing product quantity) has occurred. Advances in more efficient defect identification processes may reduce costs for the auto industry amidst surging recalls this decade.³
• Transparency. Blockchain engenders transparency because all data on the blockchain is recorded automatically with a time stamp, including certain data 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.e., traceability from one end of the supply chain to the other).In this age of electrification and autonomous driving, robust traceability mechanisms are essential in the auto industry to prevent safety and quality deficiencies in manufacturing processes.⁴

Implementation Challenges

Some challenges exist with respect to implementing blockchain processes in the auto 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 data privacy regulations, such as the California Consumer Privacy Act of 2018 (Cal. Civ. Code § 1798.105) (“CCPA”) and the EU’s 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 steep; hiring blockchain developers tends to cost more than the cost of traditional developers due to blockchain developers’ specialized expertise.

Auto Industry Blockchain Adoption

Some auto companies have begun piloting this emerging technology.  In 2019, Volkswagen Group  collaborated with the tech company Minespider to trace its raw materials back to the 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 that it had conducted a successful blockchain pilot product for purchasing front lights and intended to expand the program in 2020.⁷ This year, the BMW Group IT’s Head of Innovation and Emerging Technologies, Andre Luckow, reported to the Wall Street Journal that the blockchain technology programs the BMW Group implemented have “proven fruitful in inspiring initiatives that accelerate data visibility across our value chain.”⁸ Luckow also disclosed that the BMW Group is exploring use cases for blockchain 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 purchasing process.⁹  According to Luckow, in the not-so-distant future, “buying a car could be as easy as scanning a QR code.”¹⁰

While adoption of blockchain technologies in the auto industry has not been swift, some auto companies have enjoyed success with blockchain programs, and we can expect to see a steady acceleration in the implementation of blockchain solutions in auto supply chains.

For a deep dive into how supply chains could be transformed by cutting-edge blockchain technology, check out Foley & Lardner’s “Blockchain in Supply Chain” series.