Few supply chains rival those of global automakers, both in terms of complexity and efficiency, with China taking a lead role in the production of thousands of different vehicle components for use worldwide. Now, there’s a major rethink underway. This is most recently the result of an unprecedented semiconductor shortage, coupled with disrupted access to other parts and materials, all of which led to new vehicle shortages in the US.

As well, political tensions first raised tariffs of Chinese-made goods bound to the US in 2018. Disputes now are centered on technology necessary to make electronic vehicles, the future of automotive manufacturing.

“China and other countries rode what you might call pre-pandemic stability in the network,” said Foster Finley, who co-leads the transportation and infrastructure practice at consultancy AlixPartners. “But I do think that it is substantially changed and will continue to change.”

Regionalism is replacing globalization. “When it comes to automotive, [the supply chain] is getting much closer to each region,” said Daniel Karlsson, the managing director of the consultancy Asia Perspective. “You don’t send car parts around the world.”

In China, Tesla sources its batteries from China’s CATL, the world’s largest battery producer.

Tesla’s Approach

Nothing exemplifies this more than Tesla.

Tesla now has what it calls “giga” factories in Shanghai and Berlin, as well as four in the US. It is carving up the automotive world into spheres of influence — the US for the Americas, Germany for Europe, and China for China, and much of Asia. While this might be more redundant, it avoids political and sourcing issues. It also shortens the supply chain, making transport less dependent on lengthy sea voyages and deliveries more assured.

“That model is where we’re heading,” said Stanley Chao, managing director of All In Consulting and the author of “Selling to China”.

Sourcing close to vehicle assembly becomes especially critical with key, technologically advanced components, much more apparent as manufacturers move to electric vehicles. With EVs, that’s notably battery production, and the materials that go into it. Tesla now makes its own batteries in the US, although it also relies on the Japanese manufacturer Panasonic. In China, it sources its batteries from China’s Contemporary Amperex Technology Co. Ltd. (CATL), the world’s largest battery producer. In early August, according to Bloomberg, Tesla also signed long-term agreements with two Chinese companies for ternary precursor materials, what the news service described as “chemical cocktails that are key to storing energy in lithium-ion batteries.”

Mexico and the North American Market

In July, Bloomberg reported that CATL was scoping out possible sites in Mexico for battery plants to service the North American market.

That reflects the other major trend impacting vehicle manufacturing, one that is allied with regionalism and has been developing for years now — near-sourcing. In terms of the North American market, Mexico has been growing as the destination of choice for vehicle components, eclipsing China, and other countries in Asia. “Mexico has become phenomenally competitive and economic with…

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