RIETI Report October 2017

Future of the Automotive Industry: Preparing for structural changes in the supply chain networks

As the future of the automotive industry is heading toward electric vehicles (EV), Japanese automotive companies are bracing for change in their supply chain structure, which has been one of their primary competitive advantages. It remains uncertain whether and how the Japanese automotive industry can build new strength in the emerging EVs-dominant market. In the October issue of the RIETI Report, we present the column "Future of the Automotive Industry: Preparing for structural changes in the supply chain networks" by Faculty Fellow Nobuaki Hamaguchi.

Hamaguchi explains that Japan must follow suit in the EV market as world automobile market leaders are moving in that direction. For Japan, the pace of change is the focal point, and he feels that it is not imminent and there will still be some time. Hamaguchi then proposes some possible directions of development that the affected Japanese companies—which produce items that will be made unnecessary by EVs—can pursue. Finally, he stresses that is imperative for the automotive industry as a whole to continue to develop and drive the Japanese economy, and changes to the various regulatory and institutional systems as a result must be acceptable to consumers and the government and businesses must help develop innovative ideas.

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Future of the Automotive Industry: Preparing for structural changes in the supply chain networks

HAMAGUCHI NobuakiFaculty Fellow, RIETI

Although a gasoline-fueled car is usually said to contain approximately 30,000 parts and components, a closer look reveals that depending on the way of counting, it can be as large as 100,000 with some 10,000 parts used to make just an engine.

In the case of an electric vehicle (EV), which runs on a battery-powered motor instead of a fuel-powered engine, there is no need for fuel system parts such as a fuel tank, ignition system components such as a spark plug, exhaustion and emission control system parts such as a muffler, air intake system parts such as a throttle, lubrication system parts such as a fuel pump, cooling system components such as a radiator, and transmission system components such as an automatic transmission (AT) (according to the EVsmart Blog). As such, the number of parts and components used to make an EV is approximately 10,000 or 1/10th of the number of those required for a gasoline-fueled car.

As shown in the Table, the Japanese automotive industry has a pyramid structure with a small number of finished car manufacturers at the top and more than 1,000 parts and components suppliers—such as those producing engines and bodies—in the bottom. An increase in the market penetration of EVs will force those automotive parts and components suppliers to make a significant shift.

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