Auto companies have a lot of work to do, and much to learn, as they evaluate the next steps with blockchain technology. For those that get it right, the benefits include trusted transactions and the ability to offer innovative services. But most have yet to get started.
Of the more than 1,300 senior level auto industry executives surveyed by the IBM Institute for Business Value, almost two-thirds expect blockchain to be a disruptive force within three years. Yet most companies are unprepared: Only 32 percent of automaker execs reported that their organization was ready to implement blockchain solutions, and just 10 percent of suppliers said they are ready.
For companies to get from "we're not ready" to implementing blockchain within three years will require fast action and a steep learning curve. Here are three directives that can help executives get started:
1. Identify the most compelling use cases for blockchain by considering where friction is holding you back or tying up resources.
In the auto ecosystem, many processes and systems are not streamlined or optimized and are still paper-based. Companies struggle to share information with each other.
Consider part traceability from the time a part is created to its installation to when a vehicle is retired. That life span can stretch 15 years or more, as owners keep their vehicles on the road longer. Because a part may be replaced at any point along the way, being able to trace a component is a big issue. With blockchain, you can tie information to the individual part. It can carry warranty information, quality issues, recyclability and other data. Blockchain ensures that information can be shared and trusted, and cannot be edited.
Sources of minerals such as cobalt that go into electrical vehicles is another example of where blockchain could reduce friction. A pilot project is underway simulating how cobalt produced at Huayou's industrial mine site in the Democratic Republic of Congo could be traced through the supply chain as it travels from mine and smelter to an LG Chem cathode plant and battery plant in South Korea, and finally into a Ford plant in the U.S. An immutable audit trail created on the blockchain includes corresponding data to provide evidence of the cobalt production from mine to end manufacturer.
In addition to traceability of parts, auto companies increasingly require the ability to track software revisions. Some high-end vehicles contain more than 100 million lines of code, and it is vital that all that software stays up to date. That will become even more crucial as autonomous vehicles become more widespread.
2. Auto industry leaders recognize there's potential upside in helping their businesses scale and profit.
Fifty-six percent of automakers and 52 percent of suppliers agree that their companies' blockchain investments will be highly influenced by the opportunity to develop new business models.
Today, pioneering auto companies are experimenting with innovative business models that incorporate blockchain — in-vehicle transactions, car-sharing and smart contracts, for example.
Imagine some of the transactions people will be able to conduct from their vehicles. In these early days, that might include buying fuel, paying for parking or going through a drive-up window for coffee. Such services are a great opportunity for blockchain, which can be used for secure, token-based transactions.
Car-sharing services represent another opportunity. When people get into shared cars, or autonomous vehicles, their identities can be authenticated.
3. Success in blockchain adoption will depend not on who can build the strongest network.
The realization of blockchain will be determined largely by two things: the acceptance of standards across blockchain networks and the ability for participants to see value to their business when participating.
The greatest value can be realized when multiple blockchains operate in a network of networks. An example is the distribution process as a new vehicle moves from automaker to dealer. It involves auto companies, logistics providers, government agencies, financial institutions and others, each participating in multiple business networks. The experimentation happening now, with different use cases and pilot projects, is important because it is establishing where the real business value lies to transform the industry.