A destroyed building following Russian missile strikes in Kyiv, Ukraine, in March. While German supplier Leoni’s wiring harness plant has not been damaged, workers have been forced into bomb shelters when Russian attacks escalate.
Disruption has taken many forms within the European automotive industry over the past two years.
The most dramatic and immediate was endured by suppliers in war-torn Ukraine. Among them was Leoni, which makes wire harnesses at two factories in western Ukraine.
"If rockets are flying around, you don't know where they will land. You have to be able to get your people into a bomb shelter in 15 minutes," Leoni CEO Aldo Kamper told the Automotive News Europe Congress in July.
The knock-on effect was that automakers such as the Volkswagen Group were forced to slow production as supply of yet another part became critical.
Leoni scrambled to restart production as the danger from Russia's invasion of the country in March lessened in the west of the country, but disruption was still just a siren away.
"I think we will see less hardware variety and more software variety" in future cars, Leoni CEO Aldo Kamper told the Automotive News Congress last month.
"After a few weeks, we were working three shifts once again. Like in normal times almost, except every now and then you grab your bag, and you go to the shelter for two hours," Kamper said.
The delicate global web of parts connections created by automakers and their suppliers has been torn many times in the last two years, both by the war and the pandemic. But that's not the only disruption automakers have faced.
Newcomers led by Tesla have exposed outdated business models by applying a digital mindset to an industry previously more focused on the physical.
Major disruptions that have affected the automotive industry since 2020
Emissions regulations have forced automakers to plan the end of internal combustion engines earlier than many had hoped.
And rising raw materials costs have pushed up the price of everything, not least the electric cars that are poised to replace gasoline and diesel models.
Forced to get inventive, automakers are finding solutions that both solve current problems and aim to create a path to a financially sustainable future in an uncertain world.
For example, the reason Leoni was unable to quickly transfer production to the company's factories elsewhere in Europe such as Romania was the sheer complexity of the harnesses it was making. And the reason for that was because automakers over the years had offered customers more and more options, especially the German premium brands.
That made each harness unique, Kamper said.
"It was nice for the customer, and it was nice for the automaker, but it came at a huge complexity not only for the harness maker, but for everybody that supplies to the car," he said. "In this crisis, we now realize that if you standardize, you get more output. I think we will see less hardware variety and more software variety."
Automakers are already simplifying lineups to reduce complexity as they look to satisfy demand amid tight supply.
Tesla is reportedly only building Model Ys at its new plant near Berlin in one of just two colors: black or white.
Meanwhile, Renault is offering so-called "fast-track" delivery for its Arkana SUV to customers who choose black, pearl white or grey.
As well as forcing automakers to streamline manufacturing, the crises are encouraging them to reassess where exactly parts are coming from.
"We all saw that it's pretty risky when you only have one source around the world," Ford purchasing executive Sue Slaughter said.
Unknown links in the supply chain
"Our supply chains can be really complex, and we will quite often know the top of the supply chain and the bottom of the supply chain. But the bit in the middle, it's quite grey," Sue Slaughter, Ford's purchasing director for global material cost and supply chain sustainability, and the former chief purchasing officer for Ford of Europe, told Automotive News Europe.
The crisis has given Ford another variable in its quest to future-proof its supply chain -- risk.
"One the of the things that the pandemic taught us is that it's not just carbon neutrality we need to look at but also the risk assessment of our supply chains," Slaughter said.
The company had increasingly turned to the Far East for particularly electronics but is now reassessing that.
"Historically, we were just looking at cost. But we all saw that it's pretty risky when you only have one source around the world," Slaughter said. "Certainly, we would be looking to move some of the electronics onshore."
'Just-in-time plus'
Toyota, a longtime leading influencer when it comes to just-in-time manufacturing, now operates what it calls "just-in-time plus" to allow for a buffer of stock for some items to offset shortages rather than having the supplier deliver direct to the assembly line.
"Nowhere in the Toyota Production System does it say you have to have zero in-house inventory," Toyota Europe manufacturing chief Marvin Cooke told the Automotive News Europe Congress last month.
"Nowhere in the Toyota Production System does it say you have to have zero in-house inventory," Marvin Cooke, head of manufacturing for Toyota Europe, told the Automotive News Europe Congress. "You have to have the right amount of inventory to have a continuous flow of production pulled by the customer."
Cooke said Toyota went into the pandemic "better off than some of the competitors" due to changes it had made following the parts shortages caused by the March 2011 natural disasters in Japan, but he said there was more to do.
"We recognize we have some vulnerabilities where we would need to either have parallel sourcing or keep inventory," Cooke said.
New business models
The clear message is that the automotive industry can't stick to a model that predates the pandemic, particularly when it comes to sourcing from long-distance locations. For one thing, companies need to factor in fast-rising shipping costs.
"We have had to re-examine every one of those [off-shore] business cases because the input costs from before are obsolete," Doug Del Grosso, CEO of seat maker Adient, told Automotive News Europe.
However, that doesn't necessarily mean every component needs to be "re-shored."
"It's always a function of return on capital. You are duplicating capacity that already exists in an attempt to offset input costs," Del Grosso said. "The automotive industry has been notorious in duplicating capacities to look for material savings. That's not a very attractive financial model to pursue."
He said Adient will continue to source globally, but also with the option to expand local production.
Volvo Car CEO Jim Rowan also pointed to parts sourcing as an area he wants to improve.
"I would love to be further ahead in our local sourcing strategies and have a little bit more supply chain resilience globally," he told Automotive News Europe. "We are working on that, but that doesn't happen overnight."
Crucial question
One crucial question that both suppliers and automakers need to ask: Do they need the same capacity post pandemic as they did before COVID struck.
Only 6.5 million cars were registered in Europe during the first half, according to data from industry association ACEA, down 14 percent on the year before. It's unclear whether the region will ever return to the 15 to 16 million annual sales seen prior to the pandemic, Philippe Houchois, automotive analyst at the bank Jefferies, told the Automotive News Europe Congress.
He cited the rapid exit by automakers from the affordable minicar sector and raised the specter of shutting plants. "We may have to redesign the industrial footprint if structural demand doesn't return," he said.
If it does return, there's no guarantee customers will choose the incumbent brands.
Less 'free' capital
Disruption inflicted on the automotive industry by new players has been a strong theme of the last few years, accelerated by the pandemic amid huge interest in the stock listing of innovative startups.
That has led established automakers to rethink their strategies as they counter the likes of Tesla and other potential threats from EV newcomers, particularly from China.
The money generated by listing in the U.S., particularly from deals with special-purpose acquisition companies (SPACs), allowed innovative automakers to fund lengthy development programs.
However, the subsequent collapse in share prices for startups has severely curtailed their access to new money and that could relieve the pressure on established automakers.
"It's a very capital-intensive industry and for the last 10 years capital has been for free, pretty much," Arndt Ellinghorst, a former automotive analyst and now a director at data analyst firm QuantCo, told the audience of the MOVE mobility event in London in June. "That's changing right now."
Investors becoming more cautious amid rising interest rates will have one key effect. "It will slow down the path of innovation quite dramatically I think," Ellinghorst said. "Innovation rarely comes from the automakers; it almost always comes from smaller companies."
Departing Volkswagen Group CEO Herbert Diess openly praised Tesla CEO Elon Musk and borrowed many of the U.S. company's ideas, including vertical integration on electrification, software and sales.
The ousting of Diess by the supervisory board in late July and the naming of Porsche CEO Oliver Blume as his successor could indicate that the era of being led by startups is over.
"We decided to stay with dealer network contracts and capitalize on a very valuable asset," Renault Italy CEO Raffaele Fusilli told the ANE Congress last month.
Generally, Europe's automakers move as one when embracing new trends, but there are signs that some companies want to slow the pace of disruption.
For example, Renault has said it won't follow the likes of Stellantis, Mercedes-Benz, BMW and VW and move to a direct-sales agency model for its dealers.
"We decided to stay with dealer network contracts and capitalize on a very valuable asset," Renault Italy CEO Raffaele Fusilli told the Congress. The company has enough on its plate with the move to electrification, supply chain disruption and rising commodity costs. Said Fusilli: "We don't need another stress test in the system."
