Growing demand for electric vehicles driving change in automotive sector

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Automotive supply chains are set to be transformed, particularly in Asia, with Singapore poised to emerge as a new automotive hub.

According to a new report from Transport Intelligence, Asia Pacific Logistics & Supply Chain State of the Market 2019, the key dynamics in the sector are changes taking place in China’s trade policy and the component sourcing options for electric vehicle manufacturers.

The report says one of the big changes could take place if Chinese president Xi Jinping sticks to his promise of relaxing tariff levels on finished imported vehicles; currently they are so exorbitant they preclude all but the most expensive cars.

“If this happens, it would have a significant effect on the pattern of trade,” notes the report. “It only really makes sense to import the most expensive vehicles, yet such is the demand for new cars in China that this still provides substantial business for German assembly plants in particular.

“If this tariff falls, the volume of imports will increase, moderated only by the considerable assembly plant capacity in China already.”

China has also indicated that it might relax rules on foreign ownership of domestic Chinese car manufacturers, allowing them 100% ownership.

This could create fresh demand for new vehicles in China, where consumers would have the option of higher-quality cars at cheaper prices, if non-Chinese carmakers were able to access domestic manufacturing capacity for the domestic market.

“Such a new trade settlement would lead to a considerable increase in trade in and out of China as supply chains became more rational. The clear implication is a considerable increase in freight traffic, particularly for sea freight,” it says.

However, it warns that there is likely to considerable resistance to such new policies from domestic manufacturers and the “vested interests” often found behind them.

In any event, the report says, South-east Asia is emerging as a serious production rival to China, particularly as demand for electric vehicles grows in the region and worldwide.

UK electrical goods manufacturer Dyson recently established a new production base in Singapore, chiefly due, it said, to supply chain and component sourcing cost considerations and the fact that the production of electric vehicles is so dependent on battery supply chains other electronic components.

“The pattern of production here is changing as South-east Asia becomes a serious rival to China for the production of lower- and medium-cost components.

“It is quite possible that battery production will be spread across Asia and beyond. Singapore is at the centre of this supply base,” it says.