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Manufacturers Forced to Reconsider Their Supply Chain for Electric Vehicles in Europe

Consumer demand for electric vehicles is increasing, as reports over 57% growth of registered electric vehicles across Europe, during Q1 in 2020. This is despite the car industry suffering significant decline in demand during the period, with many car show rooms closed.  Covid-19 has altered the landscape for the automotive sector, as car manufacturers battle with the reduction in car sales and the pressure of electric vehicle evolution, which they are trying to balance with a low-cost and sustainable supply chain.

Demand for electric vehicles means the average age of passenger cars is on the rise

A report produced by ACEA shows that the average age of a vehicle in Europe is getting older, with passenger cars now an average of 11.1 years old across the continent and the UK. Whilst there is a lot of new stock of petrol and diesel cars at top manufacturing plants across Europe – waiting to be sold – it would seem that consumers are holding out for the development of electric vehicles, perhaps before making their next big purchase.

Top brands are leading the way in Europe for electric vehicles

The early adopters of electric vehicles are already seeing the benefits of their visionary approach to car manufacturing. European-based car brand, Volvo have recently reported a surge in the sale of their rechargeable cars, putting them on course to achieve their target of electric vehicles accounting for 20% of their sales in 2020. Tesla has also reported a fourth consecutive quarter of profit, as the pendulum is beginning to swing for the loss-making car giant. Tesla currently employs over 5,500 people in Europe and its Gigafactory in Berlin is its  latest investment on European soil.

The automotive sector needs to shorten their supply chain

A poll conducted by ZDK with 1357 dealers suggests that demand is down for passenger cars, by over 50%, versus the same period in 2019. Whilst Covid-19 has definitely impacted vehicle purchases in 2020, it has also put the pressure on the industry to de-risk their supply chain by shortening it and bringing it back to the continent. Before the pandemic, car manufacturers had begun their electric vehicle transition journey by investing in off-shore manufacturing – mostly in East Asia. The pandemic has thrown a huge curve ball, which has created vulnerability in this strategy. The electric vehicle evolution is at the forefront of the future for the automotive industry and investing offshore now presents significant risks, which could mean some car manufacturers get left behind the evolution curve. This has forced a pressure upon many companies to halt, or even abort, their off-shore investment whilst they de-risk their strategy and explore closer-to-home alternatives.

Whilst cost matters, supply chain continuity prevails

This sudden change in direction means that European car manufacturers are actively seeking for supply chain partners on the continent, who can support their demand. The first challenge they face is to achieve the competitive rates that are accessible in the far east. However, production plants are becoming more and more automated, which is significantly reducing overheads – and ultimately cost-to-serve – which means that many European providers can supply more competitive prices to the automotive industry. With this in mind, car manufacturers are realising quickly that there is significant cost benefits and reduced risk with a European supply chain.  Whilst on the face of it, off-shore investment can seem like a lower-cost strategy, this can end up being a misguided assumption, especially with global threats like a pandemic. In fact, costs can be severely impacted with offshoring when you simply cannot guarantee the continuity of your supply chain, or the sustainability of it.

Car manufacturers are looking for low costs, high quality and security

Another benefit for European car manufacturers, who are working with a European supply chain, is the greater control they have over quality parts. Whilst ensuring that they’re working with a supply chain partner who is certified in high quality standards [IATF 16949 is usually required in the automotive industry], the car manufacturer has more access to oversee these standards and ensure that quality measures are put in place and maintained long-term. Communication is also much more effective, as manufacturers can visit their supply chain and keep a closer hands-on approach to their supply chain operation. In addition, contingency plans are much more achievable and feasible when working with a supplier base on the same continent.

You don’t’ have to cut standards if you need to keep your costs low

Across Europe there are many reputable manufacturing plants who are demonstrating high quality best-practice and investing in technology to further reduce the cost-to-serve.

ENL SK recently underwent their IATF 1649 audit, passing with zero non-conformities, which demonstrates a high level quality management system.  Having invested heavily in automation over recent years, our Slovakian plant is able to deliver a unique proposition of low-cost, high-quality parts for industries such as car manufacturing, medical equipment, electronics and many more. We are supporting the car manufacturers in the automotive industry with their existing part requirements, as well as their new developments for electric vehicles.

For further information, please take a look around our website or  get in touch