Out-Law / Your Daily Need-To-Know

Out-Law Analysis 4 min. read

Automotive supply chain faces digital and regulatory disruption

Automotive supply chains faces  digital and regulatory disruption OG 1200 x 630px v1

The move to connected, autonomous and electric vehicles has the potential to bring significant changes to long established business models as we see a shift from the traditional automotive sector towards an all-encompassing mobility ecosystem.

These changes will require the development of new thinking on where liability lies within the supply chain and how goods and services are procured and supplied as technology, consumer demands and regulatory frameworks evolve.

A shift in the balance of power

As demand for vehicles becomes more focussed on connectivity and infotainment over horsepower, the perceived core component of a vehicle is shifting from its engine to its operating system. This trend is likely to continue with the advent of fully autonomous vehicles as customers increasingly value safety and convenience over driving performance.

Likewise, with the growing demand for electric vehicles and more environmentally friendly mobility solutions, providers of electric batteries and "green technologies" are becoming increasingly important within the supply chain. The result is a shift in the negotiating power of original equipment manufacturers (OEMs) and their suppliers, with OEMs now much less likely to be able to dictate contract terms to certain aspects of its supply chain.

We are now also seeing a number of joint ventures (JVs) and partnerships between OEMs and technology providers and utility companies as the businesses seek to share know how, research and development budgets, customer reach and risk. This is a trend that is likely to continue as traditional businesses seek to partner with disruptive start-ups, and new market entrants look to exploit existing industry knowledge and brand awareness.

Impact on product lifecycles

The increasing relevance of technology will also have an impact on the relationship between manufacturers and their more traditional suppliers who typically provide a particular part to the manufacturers' specification. Manufacturers will have to accept that the more IT and software being used in the car, the more their legacy concept of not being able to change components after the start of production will be challenged.

This is because IT and software suppliers typically work with regular updates and patches in order to deliver regular improvements and bug fixing. Similarly, the product life cycles of traditional motor vehicles, with development lead times of up to seven years, and the fast paced ones for IT products need be aligned to ensure that a new vehicle is not already outdated in terms of IT when coming to market.

Mobility as a Service (MaaS)

The impact on the supply chain will not just be felt on the manufacturer's supplier side. A further area of contractual complexity in the development of connected and autonomous vehicles lies in the introduction of entirely new business models for vehicle manufacturers. At the moment, most manufacturers have limited interaction with the end consumer as their arrangements are principally with dealers. However, connected and autonomous vehicles open up a whole set of new business models which may require manufacturers to sell services directly to consumers, ranging from insurance to servicing and from infotainment to leasing.


However the impact is not just limited to new service lines within vehicles – connected and autonomous technology is expected to change the way we consume vehicles themselves. 'mobility as a service' (MaaS) is a term used to describe the shift from personally owned methods of transport to packaging mobility as an on-demand service which is accessible to all, usually via a digital platform. This is a scenario which is already prevalent within the industry, as seen by the growth of urban car clubs where people simply hire a car to use for limited periods of time, and it has potential to be extended on a global scale to mobility generally.

Contractual arrangements will need to be revisited on an ongoing basis to reflect developments in the regulatory framework for the deployment of automated vehicles and MaaS

As manufacturers shift from selling vehicles to selling mobility they will need to ensure that their contractual arrangements reflect this new approach and manage risk effectively. This new link in the contractual chain may bring manufacturers within the unfamiliar remit of consumer protection legislation which governs transactions with individuals and which can have more onerous requirements than those applying to business-to-business contracts.

Managing risk

Legislation will also have an impact on the supply chain as contractual arrangements will need to be revisited on an ongoing basis to reflect developments in the regulatory framework for the deployment of automated vehicles and MaaS.

In the UK, the Law Commission of England and Wales is currently reviewing the regulatory framework and a final report is due in 2021. The proposed framework will govern which party will take primary responsibility where autonomous technology causes harm. This will shape the automotive supply chain in future as contracts seek to manage regulatory risk and pass liability to the individual OEM ultimately responsible.

The Law Commission proposal includes:

  • A recommendation that new regulated entities and/or services should be created which are responsible for the safety of connected or autonomous vehicles (CAVs). In the MaaS area, it is proposed that operators of newly regulated services known as 'Highly Automated Road Passenger Services' (HARPS) be responsible for management and supervision of automated services. This would likely include updating, insuring and maintaining the vehicles and for guarding against cyber attacks;
  • Introducing a new regulated entity that is responsible for submitting automated driving systems for authorisation to a regulatory body and that will have legal responsibility for the safety of systems and accountability for any criminal sanctions as if the offence had been committed by a human driver.;
  • It is yet to be determined whether the operation of this entity, known as an Automated Driving System Entity (ADSE), will fall within the remit of the vehicle manufacturer or the technology company behind the development of the automated driving system. It will be interesting to see to what extent regulators use these two new concepts to determine liability and how the supply chain will respond.

Challenges for technology companies

The challenges of a new connected world do not just apply to vehicle manufacturers. The suppliers of technology will also face their own challenges, particularly around protecting their intellectual property (IP). They will need to ensure that they have the appropriate protections in their contractual documents to safeguard their ownership of their hardware and software and their right to derive revenue from such technology - so they are in effect not giving away their "crown jewels".

Manufacturers and businesses higher up the supply chain will need to ensure that appropriate licences or rights are obtained to use any IP that they do not own. All of this adds to a more complex set of contractual relationships and the need to secure the expertise to deal with unfamiliar legal arrangements.

As CAVs become more prevalent in the automotive industry, it is clear that opportunities for growth are available within the sector. Whilst it is interesting to see how the supply chain will react to developments, it is anticipated that those that are positioned to manage their supply chain dynamically as technology, consumer demand and legislation progress will be best placed to take advantage.

Future of mobility
The way we move is changing radically – climate change, superfast telecoms networks, electrification, AI and digital payments are rewriting the transport rulebook. Autonomous and shared vehicles and mobility as a service are fast becoming a reality.
Future of mobility
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