There has been a perception that manufacturing cars in North America, especially in the U.S., is not ideal for automakers. For the past 30 years, North American auto manufacturers have looked overseas for cheaper products and services in an effort to keep costs down. The result of this relentless pursuit of lowest-cost products and services has led to an expansive, global supply chain that has been susceptible to disruption and scrutiny (that the COVID-19 pandemic and Inflation Reduction Act (IRA) have exposed). While the last few years have put a spotlight on areas of automotive supply chain risk, we are now seeing considerable investment in North American automotive manufacturing, in a shift towards a more sustainable, modern, and fit-for-purpose supply chain. 

Here are three key developments that are driving the shift in North America: 

COVID Stressed the Automotive Supply Chain to its Breaking Point

As demand volume changed dramatically and quickly, lean supply chains were unable to adapt in real time. Coupled with constraints driven by workforce availability and longer transit times, this led automakers to experience significant material and digital component shortages, production delays, fewer available vehicles, and higher costs.  

To avoid encountering this kind of problem during a future disruptive event (including events like ships re-routing around the Red Sea), automakers and suppliers have increased nearshoring and domestic production, opting for stronger, localized supply to avoid risk. A recent survey found that since 2021, automotive supply chain procurement from offshore locations has declined by 22%, and it is forecast to fall another 19% by 2025.  

The Shift to EV Production is Changing Supply Chain Requirements

Electric vehicles require a much shorter list of components and fewer suppliers compared to internal combustion engine vehicles. The shift towards software-driven vehicles is also creating an overall reduction in vehicle component parts and systems. As a result, automakers are also changing their platforms. These changes make it more cost-effective to produce vehicle components closer to production.  

In particular, EV batteries are heavy and hard to ship, which has created a demand for battery production and assembly closer to EV manufacturing sites. EV battery production also relies heavily on chemical and mechanical engineering expertise to manage the raw mineral inputs required to make these batteries. As vehicle content changes, so does the location of supply, with OEMs opting to pull component supply closer to vehicle assembly. 

New Government Incentives Favor North American Manufacturers

The IRA’s EV tax credit incentivizes consumers to buy electric vehicles, and at the same time it incentivizes OEMs to localize their production. In order for vehicles to qualify for tax credit eligibility, there are stringent requirements on the source of supply and where final vehicle assembly should occur, that’s driving more investment in North American assembly capabilities and suppliers.  

According to a recent International Energy Agency report, “between August 2022 and March 2023, major EV and battery makers announced cumulative post-IRA investments of at least $52 billion in North American EV supply chains – of which 50% is for battery manufacturing, and about 20% each for battery components and EV manufacturing.”

Together, these three developments have set the stage for new investment opportunities to upgrade and expand North American auto production. 

Modernizing the North American Auto Plant

Automakers are faced with the challenge of upgrading their domestic facilities, because the majority of them were built 20 to 30 years ago and under different market dynamics. Not only are these production sites aging, they need to comprehend the new complexities and requirements that come with the production of electric vehicles. Modernization is a must.  

To modernize effectively, factories need to be able to support cloud services, connectivity, integrated data-sharing and communication. This advancement would make assembly lines smarter, generate a vast amount of data, reduce throughput time, and limit dependencies on manual processes. 

Today’s technology will enable OEMs to implement digital cores for efficiency in a way that simply wasn’t possible at the time those plants were designed and built. Advanced enterprise resource planning (ERP) platforms that leverage real-time and historical data, along with automation of formerly manual tasks from engineering to operations, can reduce labor and production costs.  

Additionally, the ongoing convergence of OT and IT empowers producers with real-time operations data that can be used to optimize workflows, identify defects in real time, and leverage predictive analysis to reduce unplanned downtime.

Changing the Nature of Automaking Jobs

Automation, more data-driven processes, and the rise of EV technology will fundamentally change the job of North American autoworkers. For example, EV battery production requires chemical engineering and battery assembly expertise. New plants with digital cores will need workers with experience in software development, data analysis, and other digital skill sets. At the same time, because EVs require fewer workers to assemble them, some automakers are bringing more component manufacturing in-house, creating opportunities for their employees to acquire new skills and competencies.  

The autoworker will evolve from a manual, line worker to a knowledge worker that ingests, synthesizes, and acts on data emanating from the shopfloor. That can reduce the physical wear and tear on employees and create a better on-the-job experience for them. A better employee experience can help automakers attract and retain talent, reducing employee recruitment and onboarding costs. 

Automaking Modernization: Not Fast, But Serious 

New facilities are being built at breakneck speed to produce EV components — especially batteries. Virtually every automaker within the North American market is already investing in gigafactory construction, sometimes in partnership with technology companies. At the same time, existing facilities are being upgraded to assemble these vehicles.  

Despite the fact that these processes are well underway, it will take time to see the full impact of these changes. By 2030, most of these facilities should be operational, reflecting the time it takes to build new facilities, modernize existing ones, and adapt supply chains for nearshoring and onshoring.  

Between now and 2030, North American automakers have the potential to leverage new processes and practices to reduce their production costs while reimagining a traditional domestic industry. As a result, we may see more robust and resilient supply chains, more sustainable options for consumers and fleet customers, and more knowledge-focused career pathways for autoworkers.  

Seth Vogel is vice president, sector lead for manufacturing, automotive and aerospace & defense at Capgemini Invent.


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