The Grant Thornton

Never has there been such disruption in the automotive industry since the advent of the car itself. Disruption is taking place in both the upstream (manufacturing and supply chain) as well as downstream (distribution and retail to the consumer). Technological transformation is at the forefront of this upheaval, but change has also been hastened due to environmental factors, such as climate change and global pandemics (COVID-19).

In the supply chain, manufacturers are facing the move from ICE to EV. We also believe emissions legislation will start to take in the whole life emissions of a vehicle, not just those at the tailpipe. This will have big ramifications, particularly on raw materials – the birth of the vehicle, manufacturing, distribution, and the disposal or death of the vehicle. But, even in the short term, regulation is pushing the manufacturers to introduce more EVs, with over 120 different vehicle models and derivatives coming to market over the next year.

With tough regulations set by the UK Government for new vehicles sold to have zero tailpipe emissions by 2035, EV market penetration will only increase. There are similar requirements across mainland Europe. Some manufacturers have even chosen to purchase emissions credits to offset potential emissions fines. Further down the line is the longer-term trend of autonomous vehicles, which will be the biggest catalyst for the change from ownership to usership and mobility as a service (MaaS).

The supply chain and manufacturing

At present, the supply of EVs is still limited. This will increase substantially in the next five years. However, manufacturers will also have to drive the demand for EVs. This has been done partly with national government support through consumer subsidies, but more will need to be done to reduce the sale price of electric vehicles and the batteries within them. This will be done in several ways.

We already see the introduction of new battery chemistry, which is set to reduce cost. Some industry commentators have suggested the cost of the battery could be below US$100 per kWh by 2025, making it a much more attractive proposition (source MIT). In addition, some manufacturers are also looking at the production cost of the vehicle, simplifying the build and providing fewer options to reduce complexity and expense in the manufacturing process. Increased vertical integration in the supply chain will also reduce costs.

We have only to look at the example of Tesla to see how this could play out in practice. The organisation controls as many production processes as possible, and is attempting to co-locate its raw materials, production sites, and gigafactories to ensure end-to-end production with minimal transportation. Some expectations are that economies of scale and co-location will enable Tesla to produce a next generation car with a retail price of $25,000 by 2025 (source Tesla Investor Relations).

There is also a trend towards design houses which are outsourcing production. Examples include the likes of Fisker, which has outsourced the Fisker Ocean SUV assembly to automotive contract manufacturer Magna Steyr in Europe. Magna Steyr is also responsible for the build of EV models for Jaguar, and other brands. Fisker’s second electric vehicle, currently referred to as Project PEAR, is being developed in partnership with Foxconn, a Taiwanese company that assembles iPhones, but is rapidly expanding into the car market with partnerships with Stellantis.

Further efficiency is expected as production lines shift to electric vehicles, with some estimates in the region of 30-40% less labour required to produce these new cars. The combination of more profitable SUV derivatives, which are in high demand, with more electric models, where the market is evolving, may see manufacturers consolidate their ranges and focus on the vehicles where they can secure the most substantial return.

The Just-In-Time (JIT) approach has come under pressure over the past 18 months, with current shortages of semiconductors. This has been further compounded by the dual effects of COVID-19 and Brexit. With so many temporary plant shutdowns in recent months caused by the shortage of semiconductors, there has been increased discussion on whether localised supply chains would be better. However, there is increasing evidence that this localisation approach is taking place with significant investment in battery technology in the UK and Europe as batteries are costly and difficult to ship in any great numbers.

Distribution and retail

With changes in the upstream, this will inevitably have an impact on the downstream. Technological change will not only impact the products which are sold, for example electric, fuel cell, autonomous, and more; but also, the way in which these products are retailed and used. The distribution process is changing. COVID-19 has rapidly accelerated online sales and dealers who haven’t invested in this approach will have to adapt or not survive in the medium to long-term. Manufacturers are reviewing the direct sales approach, including the agency model, which would leave dealers focused on customer service/experience and satisfying new post-sale, used car, and aftersales demand.

There are multiple examples now of manufacturers vertically integrating their model into the distribution and retail operations: virtual integrated retail (VIR). It has been done before, with success, in small markets and with those brands which do not have a legacy retail network e.g. brands such as Tesla, where it takes just 13 clicks online to buy a £35,000 vehicle. Mobile technicians undertake much of the servicing, providing convenience to the customer and reducing the need for an expensive physical footprint.

However, there are still plenty of activities outside of the vehicle manufacture and handover process. The wholesaling of vehicles will be just as important, but as with retail, there has been an increased digitalisation of the process. Auctions are likely to be offered online, as well as physical sites in the short to medium-term, and organisations in the remarketing space will need to adapt to the requirements of EV technology.

We expect to see further simplification in model ranges with fewer model derivatives, as customers demand cheaper EVs. Such a reduction will simplify distribution and retail processes. In contrast, some of the high-end luxury brands may go in the opposite direction, introducing even more customisation but at lower volume in order to enhance profits margins, such as Porsche providing the opportunity to customise interiors on its more high-end vehicles.


In summary, costs need to be taken out of the supply, distribution, and retail chains to support the ongoing development of automotive technology, EVs, and CAVs. This cost reduction is likely to be done in a number of ways: new technologies, vertical integration, increased online purchasing options, vehicle servicing done over-the-air (OTA), and more. All these changes will need to be carefully planned, with business strategies put in place for 2022 and beyond. Read more about this in the "Business strategy for 2022 & beyond" section.