Blockchain in the Automotive Industry
The automotive industry is heading towards the next great revolution, i.e., Electric Vehicles (EVs). Tesla may be leading the pack, but players such as Volkswagen and BMW are bringing in their range of EVs. Coupled with electrification, the autonomous car has poised to change the way it is being driven.
There have been considerable changes across the value chain of the automotive industry, ranging from the supply chain to how the car is being used. In any case, what is evident is the fact that the volume of data generated is enormous, and presently, that data is crucial for all players in the automotive ecosystem. A considerable investment in data storage and software to understand how and where the data is being captured and stored is required.
Automotive OEMs are excited about this data, as it can be a considerable value addition to their operations as well as to an end-user as a service offering. However, there are numerous challenges that need to be addressed before this data can be used. The main challenge is security in terms of who is allowed to have access to this data and how can this data be securely managed. In this respect, there is one solution on the horizon, i.e., blockchain.
A fairly straightforward definition or understanding of blockchain is that it is a decentralized ledger that multiple parties have access to in a secure network. The ledger consists of a series of blocks that represent transaction records (time stamped) in a sequential manner, thereby forming a chain, and hence, the name, blockchain. The interesting aspect is that a network of systems is used to validate whether a transaction is valid or not. As there are multiple check-points, the authenticity of the data can be evaluated and maintained accurately. The process repeats during the entire life cycle of the given product, and pertinent data at each stage of the value chain is evaluated and captured before the next transaction takes place.
The application of blockchain technology in the automotive industry can bring about numerous benefits for parties involved prior to vehicles being sold as well as for those who have to deal with vehicles after they are sold. As there are multiple parties involved, the authenticity of data and security of data are inherently provided by the technology. In addition, the decentralized nature of the technology ensures that there is no single party that is in control of the flow and content of information in the ledger. This would have been the case in a centralized scenario where a single party or group of parties would have this power, thereby exposing the ledger to the possibility of data being manipulated/deleted or even denying access to other parties. However, this is not the case in a blockchain. In a normal scenario, the cost for maintaining such a ledger could be high, if one single party was responsible for the ledger. In the blockchain scenario, the ledger is decentralized, and hence, the cost is distributed among various parties. Audits of the data captured can be done at any time. The technology is so versatile that invoices and digital contracts can be captured, issued, and recorded in a foolproof manner.
General Motors and BMW are strong supporters of blockchain technology; these companies are considering the blockchain technology as a means to share self-driving car data among themselves as well as other automotive industry participants. It is an effort to ensure that valuable data that is being captured in a separate and disparate fashion is made available to everyone, which eventually will help autonomous vehicles enter the market. Research in this area is ongoing under the supervision of the Mobility Open Blockchain Initiative (MOBI), a consortium formed in 2018 to harmonize the development of blockchain across the automotive industry or, more specifically the smart mobility industry.
In 2018, BMW tested a blockchain platform for tracking the mileage of leased vehicles. The program was carried out in partnership with DOVU, a blockchain start-up. DOVU developed a system with BMW’s fleet manager to incentivize drivers to log mileage in leased vehicles. BMW gathered data with respect to the running of leased vehicles through the blockchain technology. This acquisition of data would help automakers understand how vehicles are being used and operated in the long run.
The blockchain technology can be broadly used for two key areas (in addition to many more) within the automotive sector. These areas are listed below:
1. Data Safety
With autonomous driving and connected vehicles being the main themes in the automotive industry, industry players are exploring means to safeguard data, thereby ensuring that there is no unauthorized access to the enormous volume of data being created. Blockchain offers this security, as the information is immutable, i.e., once the data block has been evaluated and entered, it cannot be changed by anyone. This is an inherent safety feature provided by the blockchain technology. Transaction data pertaining to contactless payment for fuel, or availing services through a third-party service provider, or the addition of a new facility through the infotainment system, can be executed and stored securely.
Telematics is another area of concern, as it is no longer just the position of the vehicle that is being transmitted, but key performance indicators (running time, fuel consumption, braking details, etc.) are also being transmitted among various devices. These data points can be securely recorded through the implementation of blockchain technology.
In the long run, blockchain can be used for the secure payment of a number of services. This is already being experimented in the automotive industry by Porsche. Porsche employed blockchain technology for recording the transaction of parking fees. The use of this decentralized technology for the purpose of automating the payment of microtransactions is so far limited to parking fees but has the potential to be used for various other tasks. With the expertise of a Dutch blockchain specialist organization, Quantoz, Porsche is looking towards the introduction of a cashless mode of payment in the automotive industry. As on date, a car owner will be able to enter a car park and identify him/her using an RFID card. Once the owner is down with his/her business, the owner can use the RFID card while exiting the parking area. The entry and exit time would be recorded accordingly, and a bill would be generated automatically as well as sent to the designated blockchain wallet of the owner. Porsche would further collect the due amount from the owner at predefined intervals and pay the parking authority.
2. Supply Chain Transparency
The supply chain is the most important and pertinent area in the automotive industry, as the authenticity and movement of parts from one part of the supply chain to the next can be monitored and recorded. The next stage involves suppliers getting orders based on their overall performance and track record, which can also be captured through blockchain. The awarding of contracts or smart contracts can take place digitally based on the decentralized ledger, thereby facilitating faster movement and release of contracts whilst still being secure. These contracts can also be generated based on predefined conditions; for example, if an order is approved internally within an OEM, the order can be released to predefined suppliers based on their past relationship, the quality of their products, pricing, time for supply, etc. The contract can be awarded automatically, thereby reducing the lead time. An added advantage here is that everyone within the chain will be able to view who is supplying what and where it needs to go and when. This presents itself as an action item for other parties in the supply chain to be ready for when parts come to them and processes keep repeating. It is impossible to introduce a counterfeit product in the system without other parties knowing. The inspection and test reports of parts manufactured would be stored securely, which would be essential in case of a problem with a particular component during the lifecycle of the vehicle.
Some of the events that have taken place in the automotive industry over the last couple of decades and immediate benefits that the industry can avail through the implementation of the blockchain technology are listed below:
a. Vehicle Recalls
In a pre-blockchain scenario, once an OEM has sold thousands of vehicles of different models across numerous markets, the only other reach that the OEM has with these vehicles is through their vast service/dealership network. In cases where a component has been found to be defective in some vehicles, it becomes necessary to recall vehicles with the faulty component. This results in a massive recall that translates to a considerable cost. It is not necessary that all of the components are defective, but maybe a certain number of batches. Without knowing which batch of that component was used in which car, the OEM is left with only one choice – to recall all the vehicles and to inspect each and every one of them. However, in a blockchain scenario, the OEM can trace the component, check its test and inspection records, and, more importantly, know exactly which vehicle is using the faulty component. In such a scenario, the OEM may have to engage in a targeted recall of a few vehicles instead of a couple of thousands. Furthermore, an analysis can be done as to why the component was defective based on all test and inspection records, which help determine where the problem occurred so that the same is not repeated again.
b. Insurance and Resale
In the current scenario, the insurance of a vehicle depends on the sale value, the current market value of the vehicle, country or region where the vehicle is being used, and the purpose for which the vehicle is being used. There are different parameters for different countries (some countries look at the size of the engine as well as an important parameter). The insurance premium can also differ depending on the driver’s track record. As such, insurance premiums can be generated automatically based on predefined conditions with access to authenticated data. For example, the premium for a habitual rash driver whose vehicle is involved in a number of accidents may be higher, whereas, the premium for someone who drives as prescribed may be attracting a much lower premium. Further to this, there would be no need for an individual to keep providing his/her details each time he/she changes the service provider. All required details would be stored in a decentralized ledger, which could be accessed by the next insurance service company.
Blockchain does not stop there and goes one step ahead. At the time of resale of the vehicle, authentic service records can show the true value of the vehicle as on date. Furthermore, for the financing of the vehicle, financial institutes would then be able to accurately determine the residual value of the vehicle based on the date of manufacture as well as the operation of the vehicle (through service records). The next buyer of the vehicle could also view the actual history of the vehicle and accordingly know what he is paying for and whether he is paying a fair price.
Whatever be the application for blockchain, challenges that exist today across the value chain can be addressed by the technology. In addition, the blockchain technology can also allow parties to venture into new areas, which otherwise was not possible due to a central ledger or lack of transparency or trust. Information about the general performance of a particular part of the vehicle (the drivetrain, for example) vs. the performance of the drivetrain can offer enough data to a fleet manager with respect to where the vehicle stands in terms of operation with the rest of the market. The challenge here is having this data secured, which can be answered through blockchain.
As such, the blockchain technology provides a host of benefits to different parties in the value chain of the automotive industry and has the potential of opening new business opportunities for some of these parties in the near future. Some of the largest players in the market have already been experimenting with this technology in conjunction with blockchain specialists to try and enhance their current offerings as well as to plan for the future of smart mobility. It will not be long before additional services through the aid of blockchain become standard practice as a means of a product differentiator among OEMs in the market.