Supply Chain Council of European Union |
Supply Chain Risk

Automotive supply chain faces digital and regulatory disruption

As manufacturers shift from selling vehicles to selling mobility they will need to ensure that their contractual arrangements reflect this new approach and manage risk effectively. This new link in the contractual chain may bring manufacturers within the unfamiliar remit of consumer protection legislation which governs transactions with individuals and which can have more onerous requirements than those applying to business-to-business contracts.

Managing risk

Legislation will also have an impact on the supply chain as contractual arrangements will need to be revisited on an ongoing basis to reflect developments in the regulatory framework for the deployment of automated vehicles and MaaS.

In the UK, the Law Commission of England and Wales is currently reviewing the regulatory framework and a final report is due in 2021. The proposed framework will govern which party will take primary responsibility where autonomous technology causes harm. This will shape the automotive supply chain in future as contracts seek to manage regulatory risk and pass liability to the individual OEM ultimately responsible.

The Law Commission proposal includes:

  • A recommendation that new regulated entities and/or services should be created which are responsible for the safety of connected or autonomous vehicles (CAVs). In the MaaS area, it is proposed that operators of newly regulated services known as ‘Highly Automated Road Passenger Services’ (HARPS) be responsible for management and supervision of automated services. This would likely include updating, insuring and maintaining the vehicles and for guarding against cyber attacks;
  • Introducing a new regulated entity that is responsible for submitting automated driving systems for authorisation to a regulatory body and that will have legal responsibility for the safety of systems and accountability for any criminal sanctions as if the offence had been committed by a human driver.;
  • It is yet to be determined whether the operation of this entity, known as an Automated Driving System Entity (ADSE), will fall within the remit of the vehicle manufacturer or the technology company behind the development of the automated driving system. It will be interesting to see to what extent regulators use these two new concepts to determine liability and how the supply chain will respond.

Challenges for technology companies

The challenges of a new connected world do not just apply to vehicle manufacturers. The suppliers of technology will also face their own challenges, particularly around protecting their intellectual property (IP). They will need to ensure that they have the appropriate protections in their contractual documents to safeguard their ownership of their hardware and software and their right to derive revenue from such technology – so they are in effect not giving away their “crown jewels”.

Manufacturers and businesses higher up the supply chain will need to ensure that appropriate licences or rights are obtained to use any IP that they do not own. All of this adds to a more complex set of contractual relationships and the need to secure the expertise to deal with unfamiliar legal arrangements.

As CAVs become more prevalent in the automotive industry, it is clear that opportunities for growth are available within the sector. Whilst it is interesting to see how the supply chain will react to developments, it is anticipated that those that are positioned to manage their supply chain dynamically as technology, consumer demand and legislation progress will be best placed to take advantage.

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