How to Mitigate Geopolitical Risks Affecting The Automotive Industry

Global and regional disturbances can put a serious strain on the automotive supply chains, and it has called for an industry-wide need to become more resilient in the face of geopolitical risks. This encompasses a variety of disruptions, including trade disputes, sanctions, political instability, and regulation changes. 

It is important for global enterprises to proactively manage geopolitical threats in order to maintain their competitiveness and long-term viability. Adopting long-term strategic methods is essential to regaining some control over their production and supply chains. 

How do geopolitical risks affect the automotive industry?

Just take the ongoing war between Russia and Ukraine. The brutality of the war has brought forward many consequences for the automotive industry, including trade restrictions and production disability. This has resulted in a delay in the production of electric vehicles and increased prices in the UK and EU. 

The COVID-19 pandemic and Brexit also have dramatically influenced the automotive industry, with SSMT figures showing that new car production was down by 28.7% in 2021.  RSM Global has identified a new trend emerging – developed economies are coming away from their reliance on foreign suppliers and are instead moving “towards refocusing on organically growing their own industrial economies”.  

A good example of this is how the US is looking to develop its own microchip economy and step back from its dependence on Asian chip production. Action like this is a start to mitigating the threat of geopolitical risks, but it will take a few years to see any benefits. 

How can the automotive industry mitigate these risks? 

Many automakers are concerned about the unpredictability of commodity prices and the inadequacy of supply chains, but some long-term strategic methods can be followed:

Regionalise 

Regionalising supply chains means manufacturers are not as heavily impacted by international events and instability. This proximity to the sales markets also means that companies are less vulnerable in terms of production and procurement.  

Task force

Establishing short-term management and task forces to manage scarce resources means the industry could avoid plant closures and tide companies over during any geopolitical crisis.

Strategic partnerships 

This is essential to the long-term viability of automotive companies. Making strategic partnerships can secure new technologies and ensure supply chain security. This security also extends above ensuring the availability of critical raw materials and components but also aids the compliance of ESG regulations. 

Transparency 

Transparency is key to automotive value chains, and this can be ensured by complying with regulations. This protects customers while allowing companies to offset their emissions and meet sustainability goals. It allows the identification of risks and development of effective mitigation strategies before impact.