Driving off into the sunset: how blockchain could protect automotive profits


Posted by katy on
Reading time: 12 minutes

Supporters say the possibilities with blockchain seem endless with a secure, transparent and shared system for automotive supply chains. However, not everyone agrees.

Delivery delays, stolen parts and odometer fraud: what can be done about vehicle supply chain problems like these? The answer could be blockchain. According to a 2018 study by IBM, “62% of surveyed executives say blockchain will be a disruptive force in the automotive industry within three years”.

Born as the database technology behind the bitcoin cryptocurrency, blockchain systems are secure and resistant to fraud. They can be used to make the supply chain more transparent and efficient but could also offer golden opportunities to open up new services to consumers.

What is blockchain?

As domestic vehicles become increasingly interconnected via the internet, Bluetooth and the Internet of Things, cars will need greater cybersecurity. It’s suggested that this will become more important once self-driving cars are the norm. But why is the automotive industry backing blockchain? 54% of ‘Auto Pioneers’ plan “to implement their first commercial blockchain network at scale within the next three years”.

Sharing and speed

Instead of being a centralised system where one party has control, blockchain systems are a shared or ‘distributed’ ledger. They reduce communication time, thereby speeding up this element of the supply chain. The availability and flow of information is drastically improved, as is efficiency, by making data exchange ‘near real-time’.

The other reason that blockchain systems increase speed is that in centralised systems, transactions must wait their turn to be processed by a single computer or computer cluster.   In blockchain, with its shared ledger, numerous computers process each transaction at the same time.

An additional advantage is that it is easier to maintain a database and hard to delete or corrupt data accidentally. Blockchain data is stored on multiple ‘nodes’ so there is less need to invest heavily in back-up servers/storage.

Security

Blockchain has been touted as the answer to many supply chain woes because of its advanced level of security. Records are time-stamped at creation, making fraudulent alteration extremely difficult. 256-bit encryption means data stored in such a system is likely to be authentic and secure. According to software development company Ignite, “the odds of a hacker accessing data stored in a blockchain without possession of a unique private key are truly astronomical”.

The shared nature of blockchain systems is another reason for its security. Any ‘illegal’ alterations could be highly visible to other users, so a secure system such as this would maintain trust within the supply chain.

Use-cases for blockchain in the automotive supply chain

Notably, blockchain has been adopted where companies wish to improve sustainability and continuation of their supply chain, as in the case of raw materials. However, manufacturers such as Hyundai are innovating with wider uses, although many are still at the trial stage.

Sourcing metals

Cobalt is particularly important in automotive manufacturing for heat regulation in electric vehicle batteries. Its associations with conflict in the Congo and also with child labour mean that it has become controversial. In addition, its scarcity means that interrupted supply could be detrimental to the industry. Volkswagen is one car-maker that has signed up to the Responsible Sourcing Network; this organisation aims to improve ethical standards by using blockchain to track the sourcing of cobalt. Ford is also trialling blockchain for this purpose.

Manufacture

Secure yet shared technology could revolutionise documentation throughout the supply chain. ‘Shared contracts’, for example, are said to be a way to remove intermediaries such as legal teams; documentation is delivered directly, speeding up the process. Manufacturing and fleet information could also be shared much more swiftly, with implications for planning, inventory control, creating more efficient networks and cutting administration costs. The opportunity to increase efficiency could enable much more streamlined operations.

Blockchain could also mean the ability to identify lost, stolen or damaged car parts more easily. Not only could this prevent financial losses, but it could also make it simpler to return parts into the market with information on necessary or missed upgrades to hand.

Finished vehicles

Multiple legacy systems make it a challenge to track finished vehicles on their journey to dealers, especially when they cross borders. Global media company Forbes estimates that mileage fraud costs consumers £8.3 billion every year, but in blockchain, manufacturers and suppliers are armed with an invaluable tool against the crime. An initiative by Volkswagen gives consumers direct access to their new vehicle’s information via an app showing blockchain records concerning the car’s history.

Blockchain could create a better customer experience via the ability to track location and suggested arrival times. Buyers can be kept informed and their expectations managed. For customers, changes to documentation processes could also bring greater security and accuracy. Blockchain could be used to track insurance, vehicle safety records and so on, giving your consumers an extra level of confidence when buying their new cars.

Used cars and new areas for growth

Greater transparency indicates how new efficiencies can be found in existing markets. Hyundai is expected to test tracking vehicles throughout their life cycle, which would include recording the life story of used cars. This would potentially inject value into the re-sale market since customers could get a new level of visibility over queries like previous owners, service history or damage. However, Hyundai’s trial plans to store data in the Cloud, not thought to be nearly as secure as blockchain. As fears of the potential for hacking connected cars grow, blockchain is being viewed as the future of more secure information storage.

Hyundai’s blockchain trial may also explore a number of other ideas, such as usage-based insurance, a transport app and “an in-house token economy for users throughout their internal operations”. Blockchain means that processes that are often labour-intensive to administer can be simplified and streamlined.

What is the future for blockchain?

The MOBI Mobility Open Blockchain Initiative, set up in May 2018, already counts BMW, General Motors, Ford and Renault among its members, alongside IBM, Accenture, ConsenSys, the World Economic Forum and Blockchain at Berkeley. There is great interest in how the technology will develop; its automotive applications could make the industry more efficient throughout the supply chain. Supporters say it will not prevent fraud and other lost revenues, but it could also empower consumers and make it easier to offer them current and brand-new services.

In February 2019, MOBI’s colloquium took particular interest in common standards for blockchain usage. Although shared ledgers could bring about new possibilities on a technical level, parts of the supply chain could be no more connected than before without standardised practices. Blockchain is still a new, developing concept and technology, so proponents such as Hyundai, Ford and Volkswagen are engaged in trial projects that will highlight its strengths and weaknesses.

Blockchain’s critics

Blockchain usage is not without flaws. It’s suggested that blockchains can use a great deal of energy and that removing intermediaries (such as lawyers) to validate transactions could be risky.

Not everyone is committed to blockchain. Last March, blockchain specialist Denis Baranov, principal consultant at consultancy group DataArt, warned the UK’s Institute of Directors of the dangers of jumping on the blockchain bandwagon.

“In about 90 per cent of cases, blockchain is not the solution for an individual company or organisation, and there is a better answer,” he said.

Similarly, McKinsey partner Brant Carson outlined some of the problems with blockchain in a recent podcast.

“Is it immutable or tamper-proof? It is only as immutable and tamper-proof as the implementation itself. And, frankly, if you’re able to take over half the nodes in a blockchain network, it’s very difficult. But if you are, you can tamper with it because then you will be able to affect the consensus algorithm,” said Carson.

“As far as it being a truth machine, well, the blockchain’s only as good as the information you put in it. So if you have a blockchain, and in the blockchain you’re keeping people’s driver’s license information or voting history, and you put in incorrect data, the data itself isn’t checked in any particular way. All that the blockchain itself does is ensure the integrity of the individuals making the transaction, ensuring that you have the right combination of a public and private key.”

However, there are still many in the automotive industry committed to thoroughly exploring blockchain and how best to use it with a view to transforming supply chain management and customer service.

Did you find this interesting? Read more articles like this on our Supply Chain Insights page.